In my experience, Social Security (SSA) often gets too little emphasis in the overall financial planning process. There is a large group of financial professionals that have really good intentions, but many in the industry lack the expertise to make a detailed analysis and optimize benefits. That is not meant as criticism, it’s just a reality and is like other professions.
Doctors and lawyers are incredibly well educated but end up focusing on a specific area of focus for their practices. The financial services industry works much the same with an important caveat. The barriers to entry in the financial services industry are much lower, so you will come across a variety of credentials, education levels, and skills. It can be very confusing for consumers to determine exactly what level of training and qualifications someone has.
There are many in the industry with expertise in investing or insurance planning who are a wealth of knowledge in that space. However, it is likely they do not have the insight into SSA that you require. Please be aware that not all “Financial Advisors” or “Financial Planners” are created equal!
Sales First, Questions Later
In general, the financial industry focuses primarily on sales. There’s nothing wrong with that, and many of the products and services are suitable for the client. But the reality is that most people in the industry either want to manage your money or sell you something. Their advice regarding important decisions around your 401K, investments, and SSA may center around a solution that demonstrates a conflict of interest and may not be in your best interests.
The title “Financial Advisor” too often is just a broad marketing term. Let me stress the fact that there are a large number of fiduciary advisors who provide thorough, conflict-free advice. They are the gold standard of the industry and deserve respect for the work they do. I work with a variety of advisors who I would trust to provide advice to a close friend or a family member. They are financial advisors who also do thorough financial planning and look at the big picture when making recommendations.
Sadly, the standards across the industry vary greatly. There are also many who are only sales people who mainly care about a commission check. Elder financial abuse is a huge problem in the United States, with many unethical “advisors” misrepresenting themselves and providing unsuitable recommendations. These people also hold themselves out as “Financial Advisors”.
There’s also a lot of people in the industry with training only to sell a limited group of products. Even if they are decent people and mean well, they still have to make a living. There’s an old saying “if you only have a hammer, everything looks like a nail”. The incentive for them is place products with as many people as possible. Without a detailed analysis, the product they sell may not be optimal for your situation.
Avoid Cookie Cutter Advice
Too often, I meet with people who receive sub-optimal, cookie-cutter advice from their financial professional. Most advisors simply are not aware of complex SSA factors around spousal benefits, survivor benefits, and those who have a loved one with a disability. Unfortunately, this can cost a family thousands of dollars in the long run.
Here’s just one simple example. Most financial advisors use a life expectancy of 95 when using their planning software. That isn’t always a bad thing, since it’s smart to err on the side of a long lifespan, especially when making income projections from an investment portfolio. However, it doesn’t take into account the reality for most Americans.
The other problem is that using that number for SSA, the planning software is ALWAYS going to show mathematically that you should wait until 70 years old to collect. The “break-even” period for most people is in their early 80’s. However, based on data less than 25% of Americans live past the age of 90. What are the odds you will be part of that group? We simply do not know, so your personal and family health history must be part of the decision making process.
Not all financial professionals are created equal. If you choose to work with a financial advisor, ask them about SSA planning and how it fits into their practice. The art of planning has taken on much more significance in recent years.
People are demanding more out of their advisor and expect to see strategies that address all areas of their financial future. Don’t be afraid to shop around and work with someone who will provide true fiduciary advice as a trusted strategist. Advisors with the Certified Financial Professional (CFP) designation usually have greater insight into the nuances around SSA planning.
How Valuable is My Social Security Benefit?
The average senior couple in the United States will receive between $677,000 and $917,000 from SSA over a 20-year retirement period. To give you some perspective on that, most financial advisors would want you to have an investment portfolio worth roughly $750,000 to provide that much income over the same period. A very small percentage of Americans have a portfolio that size for retirement savings.
In my research and experience, I find that most people at retirement have a savings portfolio between $100,000 to $400,000. That’s an important amount of money, but not nearly enough to fund a secure future. It can supplement retirement income, but it’s not enough to fully fund it. Preserving those funds are important.
SSA is the main source of guaranteed income that these families will receive in their final decades. SSA should be a at the very heart of most people’s planning needs. Overlooking the impact of your decision around SSA on your retirement plan is a very big mistake. If you are looking for peace of mind, we are happy to help provide a detailed analysis that you can use in collaboration with your financial team.