how-to-grow-your-financial-practice-with-social-security-income-planning

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Sharing of my eBook with Financial Advisors, comments, input, for next edition? An eBook for Financial Advisors who wish to elevate the proficiency of their practices by becoming Social Security income planning experts. The book identifies the opportunities in the baby-boomer market specifically, and the advisory services that your clients will need to best leverage their Social Security income election. Topics covered include: an overview of Social Security election options; best practices solutions for advisors offering Social Security guidance; and how to optimally promote your new services, and to continually find better clients.

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how-to-grow-your-financial-practice-with-social-security-income-planning

  1. 1. Copyright © 2013 by Frank Horath. All rights reserved.The purpose of this publication is to educate. The author has neither liability nor responsibility toany person or entity with respect to any loss or damage caused or alleged to be caused, directlyor indirectly, by information contained in this publication.ISBN: 978-0-615-58221-4Printed and hosted online in the United States of America.
  2. 2. AcknowledgementsI thank my wife, Mary, who has accepted and supported my frequent absence while both writingthis eBook and curating Social Security income planning practice management and marketingmaterials for financial advisors. I duly credit Martha Shedden, my associate, who has been astalwart, dedicated partner in researching and refining relevant content for this eBook, inparticular her enthusiasm and keen insight with respect to counseling the female demographicon Social Security income planning. “Hats off” to Teresa Acosta for her keen editing and contentcommunication acumen. And foremost, I’d like to thank the hundreds upon hundreds of diligentfinancial advisors across this country who are concerned about the well-being of their clientsand who ultimately inspired me to embark upon this most excellent project.
  3. 3. About the AuthorFrank Horath is the founder and principal of ClientFirst Financial anddeveloper of the “Social Security canGROW Your Financial Practice ToolKitTM”. Frank has a passion for helping financial advisors better serve theirclients and grow their practice by helping them efficiently and cost-effectively“bolt-on” the Social Security income planning specialty to their services.Frank is also a practicing financial advisor and specializes in helping his clients plan andoptimize their retirement income stream. A core element of his specialty is Social Securityincome planning and how it can help pre-retirees and retirees maximize and optimize theirSocial Security income election for their unique family financial profile.Frank has presented to numerous professional groups on maximizing/optimizing the SocialSecurity income election, including accountants/CPAs and estate planning societies. He is aregistered provider with the State of California Bar Association providing continuing MCLE legaleducation units to California Attorneys on Social Security income planning. He has alsoprovided continuing education (CPE) units for Certified Public Accountants.Frank began his career in the financial services industry as a retail account executive withMerrill Lynch Pierce, Fenner & Smith in 1994. He then worked as a Financial Advisor for DeanWitter/Morgan Stanley between 1997 and 2008. Frank made the move to independence in early2008 affiliating with his current independent broker-dealer. Frank has a Master of Sciencedegree from the University of California, Santa Cruz and a Bachelor of Science degree fromUniversity of California, Davis in the “tangible sciences” of Earth & Marine Science and Soil &Water Sciences, respectively.Frank has been a beta software tester for several of the top Social Security income planningsoftware developers. He has stewarded numerous financial professionals and clients onstrategies for solving specific Social Security claiming cases. One of his particular passions is tohelp enlighten financial professionals to the great consumer need for sound Social Securityincome planning. Frank immensely enjoys teaching financial professionals how to market theirSocial Security income planning services creatively and effectively.Frank was briefly famous in October 2005 when he, his son, and two members of a Californiawinemaking family were stranded for a week in a rare early snowstorm in the Sierra Nevada.
  4. 4. This story has been featured in Time Magazine, CNN, the AOL home page, the WeatherChannel Documentary “Storm Stories,” and in a “How to Survive” article in Popular Mechanicsmagazine. He is extremely grateful to the dedicated Fresno County Search & Rescue team fortheir relentless rescue attempts and to the U.S. Military for the Chinook helicopter shuttle tosafety.
  5. 5. Table of ContentsAcknowledgements.....................................................................................................................iiAbout the Author........................................................................................................................iiiSocial Security & Pareto’s 80/20 Rule.......................................................................................viiChapter 1: 6 Ways Social Security Planning Can Grow Your Practice ...................................... 1How early embracers can acquire a bounty of new clientsChapter 2: The Social Security “Perfect Storm” Demographic................................................... 6Understanding the strong demand for Social Security expertiseChapter 3: The Client Conundrum—When To Take Social Security?.......................................15The decision-making knowledge void advisors can fillChapter 4: SOCIAL SECURITY PLANNING 101 .....................................................................21A distillation of the most relevant 20% conceptsChapter 5: 6 SOCIAL SECURITY CONCEPTS CLIENTS NEED TO LEARN...........................27Addressing their key issues to maximize Social SecurityChapter 6: FIVE RELEVANT CLIENT CASE EXAMPLES .......................................................35Applying concepts and adding value for your clientsVideo: Case Study #1 .......................................................................................................37Video: Case Study #2 ........................................................................................................41Chapter 7: SOCIAL SECURITY PRACTICE MANAGEMENT ..................................................48Key resources for adding Social Security planning to your businessVideo: Social Security Software demo ..............................................................................53Chapter 8: SOCIAL SECURITY MARKETING TOOLS ............................................................58Providing a client-centric suite of marketing contentChapter 9: IDENTIFYING & REACHING YOUR NATURAL MARKET......................................68Marketing to centers of influence & the publicChapter 10: NEXT STEPS & RELEVANT RESOURCES.........................................................75Critical path resources to develop your practice nicheAdditional Resources ................................................................................................................77Appendices...............................................................................................................................79
  6. 6. Appendix ACliffsNotes’ Workbook........................................................................................................79Appendix B“6 Tools Tax Professionals Ought to Know to Help Their Clients Capture More SocialSecurity Income” White Paper............................................................................................79Appendix CSeminar Evaluation Form...................................................................................................79Appendix DWhite Paper Request Form................................................................................................79
  7. 7. "You have brains in your head. You have feet in your shoes. You can steer yourself anydirection you choose. Youre on your own. And you know what you know. And YOU are theone wholl decide where to go..."— Dr. Seuss, Oh, the Places Youll Go!Social Security & Pareto’s 80/20 RuleThis eBook is about distilling key Social Security income planning concepts, practicemanagement techniques, and marketing tools to help financial advisors grow their practices. Ihave taken the liberty of interpreting the Pareto Principle (also known as the 80-20 rule or thelaw of the vital few) to Social Security income planning. It is my contention that the mostrelevant 20% of the Social Security income planning rules, concepts and techniques can helpyou resolve nearly 80% of your client cases (Figure I-a).By learning the critical 20% and clearly communicating this information to your clients andstrategic alliances, you will gain more market share. This eBook is not meant to be anexhaustive, all-encompassing guide and explanation of all the different elements of SocialSecurity income planning. By one estimate, the Social Security POMS (Program OperatingManual System) prior to going online could have been over 30,000 pages. For all intents andpurposes, you may consider this eBook a CliffsNotes version of the most applicable rules andtechnical aspects of Social Security income planning.Figure I-a: Apply 20% of the relevant Social Security incomeplanning concepts to resolve 80% of your client cases.vii ClientFirst.info
  8. 8. We begin by framing the demographic demand and the knowledge/decision making voids thatdrive the need for quality Social Security income planning consulting services. Then we providefive very relevant Social Security income planning case examples that you may encounter inyour practice. We then apply relevant rules and specific claiming techniques to providesuggested solutions for each of these cases. We take particular care to address the SocialSecurity income planning needs of the female demographic.For singles, and couples in particular, it is imperative to apply a best-in-class software solutionto help them make a sound, accurate Social Security income election decision. For couples, thedifference between a sound Social Security income election decision and a poor one canamount to in excess of hundreds of thousands of dollars in foregone income over their lifetimes.The Social Security income claiming rules, caveats, and nuances make this a complicatedcalculation. Because of these rules and the multitude of potential solution combinations, it willbe necessary to employ quality software to generate best-fit income election claiming decisionsfor many of your clients.Due to the recent economic contraction and overall “flat” stock market over the past decade,Americans are now taking a much closer look at Social Security income. This dynamic hasprovided a captive audience for you to market your Social Security income planning practice. Inthe latter part of this eBook, we discuss a multitude of ways to market Social Security to yourclients, strategic alliances, and prospects. And, we introduce an introductory suite of tools tohelp you seamlessly bolt-on Social Security income planning to your practice.There has never been a better time for financialadvisors to reach out and discuss Social Securitywith their clients and prospects. Currently, only ahandful of “early embracer” advisors have movedinto the Social Security income planning space. Themajor banks and Wall Street brokerage firms havetended not to pervasively educate their financialadvisory workforce(s) with respect to the SocialSecurity income planning issue and respective techniques on how to maximize client income.From a business development perspective, we can view Social Security income planning as a“Blue Ocean Strategy” for winning greater market share in the financial advisory space. A Blueviii ClientFirst.info
  9. 9. Ocean Strategy (Chan Kim and Renée Mauborgne of the Blue Ocean Strategy Institute) refersto the growth an organization can generate by fulfilling―and creating―demand in anuncontested market spaceBy absorbing the material in this eBook, you may very well open up an opportunity tosignificantly grow your financial practice. Many promising business opportunities result from thelaws of supply and demand. As of this writing, you are fortunate enough to have embraced thisopportunity early in the game. There are now roughly 10,000 baby boomers a day turningretirement age. These boomers are hungry for your quality Social Security income planningadvice. Right now there are only a handful of advisors who know how to help their clients byquantifying the Social Security income election decision.Of course, once you provide quality Social Security income planning solutions for your clients,you will further deepen their trust level in your services. You will learn to inform your client thatthe Social Security income election decision ought not to be made in a vacuum. Consequently,you will need to help your clients make this decision within the context of their additionalfinancial assets and sources of income. Naturally, Social Security income planning then servesas a gateway financial planning tool that leads to additional financial services and products thatyou provide.ix ClientFirst.info
  10. 10. Table of Contents"Unless someone like you cares a whole awful lot,Nothing is going to get better. Its not."— Dr. Seuss, The LoraxChapter 1: 6 Ways Social Security Planning Can Grow Your PracticeHow early embracers can acquire a bounty of new clientsBecoming more fluent at both understanding Social Security income planning issues andsolving election options for your clients will essentially guarantee you a large, captive clientaudience for your additional financial services and products. The impending retirement needs ofthe Silver Tsunami (retirees/pre-retirees) necessitate that you consider bolting on SocialSecurity income planning expertise to your practice. This audience needs to be better informedabout learning techniques to maximize their Social Security income. They are also greatlyconcerned about the future viability of our Social Security system.Retirees are on the hunt for more income and making a smart SocialSecurity income election is one place to potentially find it. Thefinancial collapse of 2008 has resulted in historically low yields onfixed income investments. The shrinkage of real estate values and thesoftening of the labor markets are resulting in a large number ofAmericans staying in the workforce longer. Consequently, investorswill continue to look more closely to Social Security to harvest moreincome. The difference between a poor and truly sound SocialSecurity income election can be in excess of $100,000 over a marriedcouples’ lifetime—in today’s dollars! In some instances the electiondecision can mean hundreds of thousands in additional retirementincome.Few financial professionals understand the most key, relevant Social Security income planningconcepts and how to relay this information to their clients. Currently, only a handful of advisorsknow how to calculate and distill the multitude of strategies available to couples and singles tohelp them maximize and optimize their Social Security income election. Once you havemastered tools to guide clients through the Social Security income planning maze, you will have1 ClientFirst.info
  11. 11. Table of Contentssolved an issue that is near and dear to them. You become both servant and the expert! Byhelping them solve this problem, you will grow both your revenue and level of client satisfaction.There are several reasons why you should consider aggressively embracing Social Securityincome planning within your financial practices. First and foremost, it is a core financial planningservice that many of your pre-retiree and early retirees clients will expect to receive. Anadditional reason to pursue Social Security income planning is that this service is an efficientvehicle for adding client satisfaction value and growing your financial practice. In the balance ofthis chapter we cite six ways Social Security expertise can help you add value and grow yourfinancial planning practice.Retaining Your Existing ClientsEven if your client is a multimillionaire, you should consider providing solutions for them onSocial Security income planning. This will show them how deeply you care about their well-being. Retaining valuable clients is crucial to our bottom lines; as we well know, replacing avaluable client can be both costly and tormenting.Solving a high net worth client’s Social Security planning needs, will minimize your risk of losingthem to a competitor who is educating them about Social Security. Furthermore, if you helpthem with Social Security, there is a good chance they might say something like this to theirfamily and friends... “Our advisor not only takes care of our portfolio, but he/she takes time tohelp us maximize our Social Security income... he/she really does care about us!”Differentiating Your Practice/BrandYou may ask yourself, “Why do so few financial advisors provide Social Security incomeplanning?” Naturally, most advisors like to pursue activities that potentially generate significantrevenue (i.e. elephant hunting). Chasing large investment accounts is simply “sexy” at firstglance; learning Social Security income planning and using it as a vehicle to serve and seekhigh net worth individuals (HNWI), “not so sexy.” As you read further, visualize Social Securityas the peanut that can bring home the elephant!The Social Security income and survivor benefit decision is the foundation for many clients’retirement―a hard-earned entitlement. A perfectly natural progression in the financial advisoryprocess is to frame the balance of the retirement puzzle pieces around this decision. By takingthis approach and guiding your clients through the Social Security Maze, you will differentiate2 ClientFirst.info
  12. 12. Table of Contentsyourself from your competition. Also, you will be providing a true value-added service to yourlocal accountants, attorneys, and other strategic centers of influence.By providing valuable Social Security income planning services, you will spread goodwill andgenerate concrete solutions for your clients. As always, by serving, the “law of reciprocity” willultimately work in your favor resulting in more business and greater personal gratification.Deepening Centers of Influence (COI) RelationshipsOnly a handful of advisors speak with accountants, attorneys, and other COIs about how to helptheir clients optimize the Social Security Income Election. Accountants (CPAs) and estateattorneys are continuously inundated with financial advisors pitching their investment products.Providing Social Security income planning services is a non-threatening way to cultivate,educate, and nurture relationships with these influential professionals.CPAs and attorneys are eager to obtain knowledge about Social Security income planning. Fewaccountants have ventured outside their traditional income tax andauditing work into Social Security income planning, yet theirclients now have a need more than ever for expert SocialSecurity income planning advice.Estate planning attorneys typically focus on their traditionaltrust and legal work. Estate planners, just like financial advisors,want to help their clients maximize their estate value.Therefore, these attorneys are naturally a captive audiencefor wanting to better understand Social Security income planning concepts. Moreover, attorneysoften have clients who need help understanding the survivor, divorce, and disability benefitprovisions of Social Security in addition to the more common Social Security incomeoptimization issue.Consequently, accountants (CPAs), enrolled agents, attorneys, and other COIs may be lookingfor a specialist resource―such as you―to help solve their clients’ Social Security planningneeds. My personal experience has been that advisors with Social Security planning expertiseare in high demand as guest speakers for many attorney and CPA group/association meetingsand functions. CPAs and attorneys can also be a captive audience for you to provide and fulfilltheir required continuing education units. These units can often be provided by you once you3 ClientFirst.info
  13. 13. Table of Contentsare equipped with quality Social Security income optimization content and registered with theappropriate certifying umbrella organization(s).Generating Strong Media & Direct Marketing Response RatesThe Social Security income topic is well-received by the public via daily conversations, print,radio and social media. Surfacing the Social Security income planning conversation frequentlyresults in fruitful client and networking conversations. The general public readership (e.g. printnewspaper) responds quite favorably to articles on various Social Security topics. I havepersonally repeatedly received a multitude of call-in inquiries from articles I have written for localnewspapers and other publications.Direct mail marketing with Social Security—as experienced by many advisors—has been shownto provide a productive return on your marketing investment dollar. Direct mail pieces on SocialSecurity Income Optimization (e.g. seminar invitations) have an excellent response rate whencompared to many other traditional, “tired” financial product/service marketing pieces.Becoming Your Cross-selling GatewayThe Social Security income planning gateway provides a seamless transition for cross-sellingyour additional financial products and services. Of course, optimizing your client’s SocialSecurity income election need not be executed in a vacuum. The Social Security incomedecision must be evaluated in the context of your clients’ complete retirement income balancesheet: 401k, IRA, pension, annuity, life insurance, and their mortgage balance.For example, should your clients take Social Security now or later?• If they take it later, how do they optimally draw-down retirement accounts to bridge theincome need gap?• Does your client need more life insurance, or will the Social Security survivor benefit beenough for the surviving spouse?Addressing these and many other additional key financial issues can be linked to the SocialSecurity income election decision and provide the opportunity to review and enhance thepositioning of your clients’ overall financial assets.4 ClientFirst.info
  14. 14. Table of ContentsImplementing Social Security Optimization TechnologiesOnly a handful of financial advisors seem to be aware of software planning tools recentlyintroduced to the marketplace to calculate Social Security Income solutions for their clients.There is a complex interplay of Social Security income election options for married couples, inparticular, that only a handful of financial professionals fully understand. And there are hundredsupon hundreds of possible Social Security income election combinations for a couple.Few advisors understand the mechanics of strategies such as “File & Suspend” or “Claim-Now-And-More-Later.” Even fewer advisors know how to quantify the results for these strategies andpresent them to their clients, though these are powerful techniques to greatly assist your clientswhen optimizing their Social Security income picture. The selected income election strategy istypically a function of your clients age(s), PIA (Primary Insurance Amount, 100% full benefitamount), relative PIA ratios for a couple, and estimated life expectancy(s). PIA and other keySocial Security income planning terms are defined in more detail in Chapter 4.Several software vendors and financial product distributors are well aware of the burgeoningneed for Social Security income planning. Thesecompanies have recently rolled out additional resourcesand software solutions to address this growing market.Incorporating these Social Security income planningtechnologies into your practice can broaden the scopeof your billable financial planning services, providesolutions for your clients, and positively differentiate you from your competitors.The key to growing your practice with Social Security planning is to concretely and accuratelygrasp the fundamentals and common client applications in the most time and cost-efficient wayspossible. Next, acquire effective tools and integrate them into your practice to help clients solvetheir problems. Once you develop this expertise, you will want to market your powerful nichewith cost-effective marketing vehicles and distribution channels that are consistent with thevision, staffing, and scale you have for your practice.The key to growing your practicewith Social Security planning is toconcretely and accurately graspthe fundamentals and commonclient applications in the mosttime-effective and cost-efficientways possible.5 ClientFirst.info
  15. 15. Table of Contents"The storm starts, when the drops start dropping.When the drops stop dropping then the storm starts stopping."— Dr. Seuss, Oh Say Can You SayChapter 2: The Social Security “Perfect Storm” DemographicUnderstanding the strong demand for Social Security expertiseThe Social Security “Perfect Storm” is here. The boomers have arrived in great numbers. Thiscaptive audience deserves and will expect accurate information and sound advice about SocialSecurity income planning. Thereare a number of demographic,economic, and political forces atwork that will make you, as anadvisor, an extremely valuablefinancial resource for boomers.These forces have worked toelevate the importance of SocialSecurity income to theAmerican household’s financialsecurity.There is an overwhelming need for financial professionals to become knowledgeable andproficient in delivering quality as well as personalized Social Security solutions to thisdemographic. The Social Security income election decision ought not to be made in a vacuumbut should be implemented within the context of the client’s financial big picture. It is clear thatthe boomers will need your help to bring them up-to-speed on the Social Security electionincome basics as well as help them to select the best election income option to complementtheir overall financial picture.This chapter will spell out the baby boomer demand, what they will need, and explain why thereis a shortfall in qualified financial professionals to meet this demand. Each highlighted itemexplains why Social Security is continually becoming more important to the retiring population.These topics of interest will provide you with some bigger picture, qualitative content of why theSocial Security issue is a “hot topic.”6 ClientFirst.info
  16. 16. Table of ContentsWhy Boomers Need You for Social SecurityThe first wave of the baby boomer Silver Tsunami has arrived. You are fortunate to be a skilled,dedicated financial professional as they need your help. Boomers need you to inform themabout possible changes to the Social Security System. They need you to act as a responsiblefilter, to sift through media misinformation and disinformation.Boomers will need you to facilitate understanding how and when to take their Social SecurityIncome benefit. Both singles and couples will need you to guide them in choosing which of thehundreds of possible Social Security income election options will be the most suitable choice forthem. Once you have helped them and gained their trust, you most likely will be asked to assistthem in selecting financial products that best complement their Social Security election incomechoice.The Silver Tsunami has arrived!The Silver Tsunami is rolling in―a surge of nearly80 million Americans born between 1946 and 1964will qualify for Social Security between 2008 and2029. In the United States, there are about 10,000people per day entering “boomer-hood.” Asubstantial portion of these boomers have elected tocollect their reduced Social Security income benefit at the age of 62. Unfortunately, many ofthem have made their decision in haste without adequately assessing the long-term financialimpact of their decision.By 2030, Social Securitys caseload is estimated to be 84 million people, an additional 34 millionto the 50 million of today. In the future, this will leave slightly more than two workers contributingto Social Security for every retiree drawing upon Social Security. Actuaries, demographers,economists, politicians, and the general public are preparing for an estimated $50 trillion infuture obligations over the next 75 years.7 ClientFirst.info
  17. 17. Table of ContentsThe Financial & Economic Contraction... the Hunt for Income is on!As Warren Buffet says, “When the tide drops, we’ll see who’sswimming naked.” You can also view the Social Securityincome benefit in this way.When the financial and/or labormarket tides drop, financialassets shrink and employmentlevels become lower, you canview Social Security and other governmental financial entitlementprograms as the large, heavily-relied upon pillars that haveremained in place.Social Security income has become more important than ever forAmerican households. The stock market meltdown of 2008 and2009 resulted in a sharp contraction of investment assets.Following the drastic correction of the real estate market, propertyvalues dropped significantly. Unemployment increased causing a reduction in personal income,all this resulting in a huge diminishment in economic activity.In response to this economic contraction, the Federal Reserve Board substantially loweredinterest rates to stimulate the economy. Consequently, Social Security income and the potentialvalue of savings from that income has become a more significant treasured portion of Americanhousehold assets. That is why so many American households are interested in maximizing theirSocial Security income. The hunt for income is on, and Social Security is one place that theboomers can potentially get more income.Boomers Want to Know: What will Government do to Social Security?• Will government reform measures be put into action to fortify the Social SecuritySystem?• Will there be changes in the Social Security taxation rates?• Will the normal retirement age be extended?• Will there be changes in the benefit calculation formula or cost of living rates for SocialSecurity?Rarely seen are WallStreet firms touting thefact that the lifetimeSocial Security benefit fora married couple canpotentially be between$1,000,000 and$2,000,000.8 ClientFirst.info
  18. 18. Table of ContentsThe topic of Social Security reform is continuously surfacing in both print and Internet media.Clients want to be as informed as possible and prepared for any changes and how thesechanges could impact their Social Security benefits. Unfortunately, many of the mediarepresentations and content have distorted the actual Social Security financial solvency picture.Basically, the Social Security trust fund is in good shape until years 2036/2037. However,following this time period, for about every $0.75 of Social Security payroll intake, roughly $1.00will be paid out to Social Security recipients. Therefore, corrective measures will need to be inplace to balance the cash flow for the fund. Your clients will need you to portray an honest,accurate portrayal of the Social Security trust fund solvency.Pension? What has Happened to Pension Plans?The parents of boomers had one thing today’s boomers often do not―a pension plan. Themajority of today’s workers are responsible for self-funding their retirement with their ownsavings. A portion of their retirement income will come from Social Security, but the balance ofroughly 65% will come from their own savings, their company 401k retirement plans withmatching contributions (in some cases) and their personal IRA accounts. As company pensionsbecome more of an artifact, maximizing Social Security incomebecomes more important for today’s boomers.Is the Social Security Trust Fund Going Broke?American boomers want to know if Social Security will be there for them.Due to both the current higher unemployment rate and significantnumber of Social Security claimants, the future liquidity of the system isnow threatened. This leads to two questions:1. “Will Social Security be there for us?”2. “What are the changes that will be made to the system and howwill these changes affect me?”Longevity of BoomersToday’s boomers are living longer than ever. In 1970, the average life expectancy for males wasabout 67 years and for females was less than 75 years. Today, the average life expectancy fora male who reaches age 62 is roughly 80 years whereas the life expectancy of a female whoattains 62 is about 83 years. One out of every four 62-year-old females will live to age 90.9 ClientFirst.info
  19. 19. Table of ContentsIncreased longevity provides another compelling reason for making the most informed decisionto maximize Social Security income. A boomer, such as a lady of the household, in particular,should be aware of the longevity factor, that she is likely to outlive her spouse. To this end, thefemale spouse is strongly encouraged to take a more active role in managing the householdfinances.Why Boomers Urgently Need Your AdviceThe lifetime value of the Social Security income benefit is significant. A married couple, bothhaving a strong earnings history and claiming at full retirement age, may potentially receive alifetime benefit in excess of $1,400,000. In addition, if managed correctly, a good portion of theSocial Security income benefit can potentially be received as tax-free income. Furthermore, awell-planned sequence of retirement asset withdrawals from the various pots of money cansignificantly add to the longevity of a couple’s retirement income stream.Historically, many couples and individuals haveopted to claim Social Security when first availableat age 62; however, this is changing. Many familiesare now electing to take Social Security at a laterage when possible. The simple “land grabmentality” of taking Social Security at age 62 maybe one of the biggest financial mistakes a couplecan make. Few boomers are aware of this and this is why they need your help. They need youto explain all the considerations and productive strategies with respect to timing their SocialSecurity income election.They will also need you to help them calculate how to optimize their Social Security electionincome. If you take it to an advanced level, they will need your services, or the services of asupporting financial planner, to help maximize the drawdown efficiency and sequence ofsiphoning income and principal from their retirement income streams and accounts.Boomers will be Working Longer and Retiring LaterFollowing the financial market meltdown of 2008 and the subsequent economic slowdown,many Americans are now delaying retirement. Scores of boomers have experienced substantialdevaluation of their investment assets, real estate properties, and income due to the downwardThe difference between apoor Social Securityincome decision and onethat is well planned canbe in excess of $100,000(in today’s dollars).10 ClientFirst.info
  20. 20. Table of Contentsmovement in the markets. As a result, many Americans will be working longer and continuing towork while collecting Social Security. They will need you to assist them to determine how theirSocial Security income benefit builds and how it can be optimally harvested as they work intotheir retirement years.Baby Boomers Wary of Wall StreetSocial Security income planning is an excellent tool to help regain and earn the trust of theAmerican investing public. Many investors have become wary of product sales driven financialadvisors and the companies that support them. Clearly, you will have to work harder andsmarter and bring more to the table to both gain new clients and retain your existing ones. Byhelping your clients navigate through the Social Security maze, you will have the opportunity toerase some of the negatives that have been recently associated with the financial servicesindustry.There is a Shortage of Professional Financial ExpertiseYou are fortunate to be in the early part of this perfect storm demographic. If you survey yourlocal financial professional community, you will discover there are few who have moved into thearea of Social Security income planning. There are a number of reasons for this shortfall in thesupply of financial professionals working in the Social Security income planning area.Social Security income planning typically provides nominal income for the advisor on the frontend, but can often lead to a significant income potential on the back-end. Most financialprofessionals, in their common business model, might hope/expect to be compensated up frontand might have struggled with implementing theSocial Security income planning as a “loss-leader”service. However, if you are willing to be service-oriented and stay the course, many financialopportunities can unfold for you and your clientfollowing your Social Security income planningefforts.If you are an independent advisor, you may possibly have a competitive advantage over someof the larger banks and brokerage firms. You may have the flexibility to move quickly toimplement innovative Social Security income planning strategies as a gateway marketing andfinancial planning tool to grow your business. Learning Social Security income planning could11 ClientFirst.info
  21. 21. Table of ContentsBy learning the most critical 20%of Social Security rules andplanning concepts, you can solveroughly 80% of your clientplanning scenarios.possibly provide an opportunity for you to capture business among the boomers from largerWall Street bank and brokerage competitors.If you work with a large bank or brokerage firm, my hope is that you capture the opportunitiesthat Social Security income planning offers. Evaluate the tools your firm has and carry out duediligence to see what external tools are available for you. Survey your peers within your firm andask them about the merits of pursuing Social Security income planning. You can also askaccountants and estate planners for input. Cross-checks and feedback from these professionalsalong with the position your firm takes will help you formulate your own approach with respect toSocial Security income planning.Social Security Income Planning: Taking the Leap, Details, Uncertainty, Inertia...Learning Social Security income planning will take some effort on your part. It could mean extrahours for a few months with some time spent in the evenings and during weekends. Learningthis material might require you to alter your daily work schedule. Advisors can at times fearchange in their daily routine. If you find it difficult tomake these changes, I suggest taking baby steps.There is a lot of information associated with SocialSecurity income planning, so be wary of getting boggeddown in the detailed minutia.You may wish to acquire resources to learn the most relevant, applicable aspects of SocialSecurity income planning. By learning the most critical 20% of Social Security rules andplanning concepts, you potentially can solve for roughly 80% ofyour client planning scenarios. Begin by learning just a few of thebasic Social Security planning principles. Then begin to informyour clients and professional alliances that you have ventured intothe Social Security planning arena. Gauge their reaction to yournewfound knowledge. As you receive feedback, continuedeveloping your specialty and adjust your work routineaccordingly.Many advisors are hesitant to touch the Social Security issuebecause they consider the Social Security system in limbo. With all12 ClientFirst.info
  22. 22. Table of Contentsthe uncertainty reported in the media, many advisors simply might choose to bury their heads inthe sand rather than addressing this important issue with their clients. The questions “Will SocialSecurity be there for us?”, “What are the changes that will be made to the system?”, and “Howwill these changes affect consumers?” are just some of the unknowns that can overwhelmadvisors. If financial professionals are confused about reform and what the media says, you canbet that our clients will also be confused and concerned. Our role is to act as a filter and toprovide the most accurate relevant information possible.The Social Security income optimization calculations involve inputting certain unknownassumptions, such as determining the projected Social Security monthly income benefit and lifeexpectancy. Work with your clients closely to place the best estimates into these calculations.This may be a stumbling block for some advisors, but our jobs often involve doing our best to“forecast the future.” Competent financial professionals will do their best to use thesecalculations and explain the assumptions built into the Social Security income planning model totheir clients to help them make wise decisions.Shifting from Wealth Accumulation to Lower Risk Retirement Distribution?Our job as financial professionals is to do our best to provide security for our clients’ incomeneeds. The United States financial market has essentially been within a narrow trading rangeduring this past decade. The Standard and Poor’s 500 Index of U.S. stocks peaked roughly inAugust 2000 at 1,517. More than a decade later, and after a number of major swings, the S&P500 now sits right around 1,292 (as of early January 2012). Market volatility and overall flatreturns over the past decade have created some pessimism with respect to investment returnsgoing forward. Consequently, pre-retirees and early retirees are more focused on preservationand security of their retirement assets and incomestream.Going forward, optimizing efficient retirement plandistribution in a lower risk fashion could very well bethe name of the game for financial advisors. After themarket corrections following the 2000 Dot.com boomand the real-estate/mortgage debacle of 2008, manyboomers have become wary of aggressive stock market growth participation. The name of theirgame going forward will be to take less risk and to maintain a good quality of living and income13 ClientFirst.info
  23. 23. Table of Contentsin retirement. Social Security planning should be at the core of this strategy. Clients will want tobecome more informed about the following:• Which assets should be drawn upon first, second, etc.?• Should I take Social Security now or wait to let it build?• What are the consequences if I draw on my 401k or IRA now and begin drawing on mySocial Security later?Financial advisors will need to be prepared to answer these questions for their clients. Advisorswill also need to learn how to solve the retirement distribution issues for their clients.14 ClientFirst.info
  24. 24. Table of Contents“Simple it’s not, I’m afraid you will find,for a mind-maker-upper to make up his mind.”—Dr. Seuss, Oh, the Places You’ll Go!Chapter 3: The Client Conundrum—When To Take Social Security?The decision-making knowledge void advisors can fillThe majority of pre-retirees and early retirees do notseem to be well informed about when and how to electtheir Social Security income. Often pre-retirees andearly retirees enter their Social Security incomeeligibility period and they simply do not know what todo. They might frequently rely upon the “advice” of afriend or gathered bits of information from a simpleSocial Security article that they have read. Rarely willthis demographic seek out, or are fortunate enough to encounter, a qualified financialprofessional to help them with this important decision.Many consumers claim and begin receiving Social Security much too early. Due to so muchmisinformation found in the media about the Social Security system, there is increasing anxietyabout the future viability of Social Security. This “noise” and what many perceive to be alegitimate concern can be an obstacle to making a sound and logical Social Security incomeelection decision. The local Social Security administration staff is essentially not allowed toprovide personalized financial advice to the public. Lastly, there are only a handful of financialadvisors who specialize in helping consumers maximize and optimize their Social Securityincome election.The largest single asset many families will have in retirement is the pool of money that SocialSecurity income will generate for them over their lifetime. Unfortunately, most people are notwell-informed about Social Security and the measures needed to evaluate and maximize thisvital retirement income stream. Failure to make logical Social Security income decisions canadversely affect retirees’ lifetime income stream and the assets they might pass on to heirs orcharitable interests.The largest single assetmany families will have inretirement is the pool ofmoney that Social Securityincome will generate for themover their lifetime.15 ClientFirst.info
  25. 25. Table of ContentsThe difference between a good Social Security election decision and a poor one can amount toover hundreds of thousands of dollars during a couple’s lifetime. Families who fail to make asound decision about their Social Security income could be leaving a large sum of money on thetable. The following categorical examples proceed from the most basic income electionscenarios to well-planned methods for electing the Social Security income option. As a financialadvisor, you will commonly encounter consumers whose strategy may lie in any one of thesecamps. Of course, for each unique client you encounter, it is your job to guide the client towardmaking a best-fit Social Security income election.Group 1: “Cash on the Barrel”... Need the Cash Now!Many retirees, because of their financial situation, must take Social Security as early aspossible, typically beginning at age 62. These individuals have basic income needs to coverrequired expenses and they elect to take their Social Security income checks to meet them.They often may not have supplemental income available (pension income, rental income,retirement account distributions, etc.), nor have they accumulated significant assets to delayclaiming their Social Security income.Group 2: “Land grab”... Take Social Security While I Can!The second group of individuals often has a "land grab” mentality. These folks are anxious tocollect their Social Security income at the earliest possible date, usually age 62. They may quitelikely be concerned about the financial solvency of the Social Security income system and wantto “get it while it lasts” or they may simply want to collect their Social Security income check atthe earliest possible date because they can.This “land grab” group may not know (or care about) the long-term financial impacts of this earlyincome election decision. They probably do not weigh the life expectancy aspect of theirselection nor take the time to research their Social Security income election decision. They maybe aware that the longer they wait the more income they receive; however, they fail to considerthe potentially adverse financial impact of this decision to take their Social Security check at thisearly election date.Group 3: Tries to Make the Right DecisionThe third group of Social Security claimants may spend some time investigating andresearching their Social Security election decision. For example, they might visit the local Social16 ClientFirst.info
  26. 26. Table of ContentsSecurity office to ask questions. They might also order, for example, the Social Security annualguidebook to better understand some of the concepts relevant to making their Social Securityincome election decision. Some of them may do the math using the available online calculatorsfor the Social Security income calculation. However, the majority of the online calculators do nothave the capability to address some of the more productive spousal planning strategies, suchas the “File & Suspend” and/or the “Claim-Now-And-More-Later” techniques.Your local Social Security office may not be the best place to ask for customized Social Securityincome claiming financial advice. Social Security Administration (SSA) staff are oftenconstrained or even prohibited from giving customized financial advice. SSA personnel arerequired to follow their online manual called the Program Operations Manual System (POMS).The POMS manual limits the scope of the financial advice they can provide. For example, onesection of the manual states, “You may mention the following personal factors that one mightconsider. However, you should not provide any advice concerning these factors.” Later in thesame section, the manual states, “The decision about when to begin receiving RIB (RetirementIncome Benefit) is a personal one and there is no "right" answer for everyone.”The local Social Security office is an excellent resource for many elements of Social Securityplanning and claim filing. For example, consumers can order their Social Security earningsstatements when visiting the local SSA office. The SSA Staff can describe what the monthlyincome benefit might be and provide information on many other Social Security planning rulesand provisions such as survivor, divorce, and spousal income benefits. Also, if you have aquestion that is “out of the box” or you have concerns about a specific claiming case, they cantypically help with such issues.However, Social Security Administration staff typically do not “solicit”and explain some of the more intricate concepts and techniques on howto calculate, customize, and maximize lifetime income for a SocialSecurity claimant.The Social Security Administration Manual and a significant portion ofarticles written on Social Security do not explain some of the moredetailed strategies and ways a couple can optimize their Social Securityincome. The local Social Security Administration offices handle a large volume of public17 ClientFirst.info
  27. 27. Table of Contentsinquiries and typically provide only the basic, commonly sought-out information on the SocialSecurity income election decision. Effectively, it is not within the scope of their daily operationsto provide advanced software solutions to help both singles and couples make financialdecisions about optimizing their Social Security income election. Moreover, it is not the SSAsrole to evaluate the election decision within the context of the client’s larger financial situation.Group 4: Consulting With the Social Security Income Expert, YOU!The difference between the best and worst possible outcomes for the Social Security incomeselection can amount to over hundreds of thousands of dollars in potential lost/foregone incomeover a couple’s lifetime. The Social Security election decision is one of the most significantfinancial choices retirees can make. To make the correct one, they need to speak with acompetent Social Security income financial advisor. In other words, YOU!You will be able to help the client understand the basics rules and claiming techniques that mustbe considered for the Social Security income election decision. Then you will work with theclient to evaluate their Social Security income statement to determine their forecasted incomelevels at ages 62, 66, and 70. For those born between 1943 and 1954, the age 66 primaryinsurance amount (PIA, see Chapter 4) income amount is commonly the number you mightinput for your clients Social Security income calculation. Their age 66 amount or PIA is whenthey receive 100% of their Social Security income benefit.This group of claimants is diligent about determining their best-fit Social Security incomeelection to maximize their lifetime income. For example the Metro couple (Figure 3a) worksclosely with their advisor to provide their “Social Security vitals” (dates of birth, PIA amounts,and life expectancies). Then their advisor employs Social Security income planning software tohelp them both maximize and optimize their total lifetime income benefit.It is important to work closely with the client to discuss their potential life expectancies. Lifeexpectancy and existing health conditions can greatly impact the Social Security incomeelection decision outcome. You will also need to determine the age difference between thespouses and discuss with them the importance of the Social Security survivor income benefitand how to plan for it. Additionally, their relative ages and PIA income amounts will directlyimpact the outcome of the Social Security income maximization calculation.18 ClientFirst.info
  28. 28. Table of ContentsFigure 3a: Social Security Vitals & Lifetime Benefits(Sources: Right, Social Security canGROW Your Financial Practice Tool Kit™, ClientFirstFinancial and Left, Maximize My Social Security, Economic Solutions)Choices, Choices, Choices!There are hundreds of Social Security income election possibilities for a married couple. Due tobaby boomer demand and the increasing importance of trying to capture more Social Securityincome, there are companies and software designers that have developed programs to assist indetermining the best Social Security income options.To help your clients develop a set of accurate Social Security income election options, learnhow to utilize state-of-the-art Social Security income calculation software. You can acquirethese technologies for your financial advisory use, or even consider outsourcing this process toa Social Security income planning specialist. These software programs typically require that youenter your client’s age(s), age 66 PIA (Primary Insurance Amount), and estimated lifeexpectancies. Once you enter this data, a quality turnkey software program will generate boththe common election strategies output (i.e. electing at 62, 66, or 70) and a recommendedcustomized strategy designed to maximize lifetime Social Security income.We suggest that the Social Security income decision should be considered and ultimatelyincorporated into your clients’ overall financial planning strategy. The first step is to determine19 ClientFirst.info
  29. 29. Table of Contentshow to maximize the clients’ Social Security income over their lifetime. Next, you might wish toassist them with their overall financial planning needs treating Social Security as the financial“core element” and then build or re-construct each of their other financial strategies around theSocial Security income benefit.It is important that you help your clients evaluate the long-term impacts of their Social Security income election andthen coordinate this decision with the rest of their finances.For example, if they take Social Security now versus later,your clients may need to draw upon their 401k or IRAaccounts to bridge their cash flowYou, as a strategic financial planner, may want to showthem the effects of adjusting the sequential withdrawals fromtheir various asset accounts and how this affects the longevityof their retirement income stream. Treating the Social Security income election as a coreelement of your financial product solutions can serve as a powerful planning tool anddifferentiates your financial practice from your competitors.20 ClientFirst.info
  30. 30. Table of Contents"The more that you read, the more things you will know.The more that you learn the more places youll go."— Dr. Seuss, I Can Read with My Eyes ShutChapter 4: SOCIAL SECURITY PLANNING 101A distillation of the most relevant 20% conceptsThere are many elements, rules, and strategies that together impact how a client can elect andoptimize their Social Security income benefit. As financial professionals, a helpful metaphormight be to visualize Social Security to be somewhat of an octopus (Figure 4a). The body of theoctopus could be considered the most relevant Social Security income principles and planningapplications that we might frequently encounter with our common client cases.The “Social Security tentacles” can be viewed as aspects of Social Security income planningthat you might encounter less frequently with your clients. For example, these element“tentacles” might include―but not be limited to―divorce, survivor benefits, disability, howearned income affects Social Security income, government pension offset provisions, etc.Certain government pensions can reduce or altogether eliminate Social Security income. Pleasesee the Social Security website for more information on the Windfall Election Provision (WEP)and Government Pension Offset (GPO) programs.Figure 4a: The “Social Security Octopus”21 ClientFirst.info
  31. 31. Table of ContentsThe intent of this eBook is to cover the main body of the Octopus, or the more relevant SocialSecurity income planning applications you might commonly encounter with your clients. Manycomprehensive Social Security reference guidebooks covering nearly all aspects of SocialSecurity income planning are provided through both private vendors and the Social Securityadministration.Independent vendors, such as Mercer provide an excellent and concise Social Securityguidebook for a nominal fee. The Social Security website, also serves as a reliable resource forinformation.As discussed during the beginning of this eBook, we provide the 80/20 practical approach tolearning and applying relevant Social Security income planning concepts. Our intent is to relayand highlight 20% of the most relevant Social Security income planning rules, concepts andtechniques that will help you work through nearly 80% of your client cases.Social Security 101: Definitions & ConceptsFollowing are some common definitions and acronyms you will encounter in your SocialSecurity income planning practice. Some are formally recognized terms established by SocialSecurity. However, additional terms and concepts have been informally labeled, generated bythe author and accordingly labeled as “author’s term” in the sections that follow. Many of theseselected terms have been defined in a somewhat condensed, simplified manner for the reader.With some of these terms and rules, there are caveats and nuances with respect to theirapplication to Social Security income client case planning. Realize that Social Security incomeplanning can be complex and that many rules and caveats may apply. Consequently, you mayneed to refer to either the Social Security website or specialty resources such as the MercerGuide to better understand rules and applications as you analyze and solve for each client’sunique situation. For the sake of simplicity—and being mindful of the majority of cases youmight encounter—we repeatedly cite that Full Retirement Age is 66 (i.e. for those born between1943 and 1954). We make this assumption for both the rules and terminology that follow, aswell as the Chapter 6 case studies.FRA (Full Retirement Age): Age when a person receives 100% of their Social Securityincome benefit. Age 66 for those born between 1943 and 1954.22 ClientFirst.info
  32. 32. Table of ContentsPIA (Primary Insurance Amount): The monthly Social Security income amount paid atFRA, full retirement age (Age 66 for those born between 1943 and 1954) when youreceive 100% of your Social Security income benefit.AIME (Average Indexed Monthly Earnings): Social Security takes your highest 35years earnings (zeros included) and applies wage index factor forward in time andtranslates to current dollars. The sum of the indexed adjusted earnings is divided by thetotal months (12 X 35=420), which generate your AIME (Averaged Index MonthlyEarnings).Age 66―Full Retirement Age (FRA): For those born between 1943 and 1954, they willreceive 100% of their Social Security income benefit, or PIA at FRA.Age 62: Commonly, the first eligible age for a person to claim and receive SocialSecurity income at a reduced benefit level.Reduction Factor or Actuarial Reduction: If the Social Security income benefit istaken at age 62 it is reduced, becoming 75% of the FRA (Age 66 if born between 1943and 1954) amount.Delayed Retirement Credits (DRCs): Delaying the claiming of benefits beyond age 66.The income benefit increases about 8% a year between ages 66 and 70.Age 70: The age that provides the highest income benefit amount. The age 70 amountis 132% relative to the age 66 (FRA) amount and roughly 76% greater than the age 62benefit. Delayed credits are not applied beyond age 70.COLA: Each year a cost-of-living inflation adjustment is applied to the Social Securityincome benefit. This COLA adjustment is based upon the urban wage and clericalworkers index (CPI-W). Historically, it has averaged about 2.8%. A negative COLAcannot lower the Social Security income benefit.Ages 78-80 (approx.) = break-even or crossover (author’s term): If a single personlives beyond these ages, claiming between ages 66 (FRA) and up to 70 can result in agreater total lifetime Social Security income amount than if they had claimed at age 62.Break-even Breakdown (author’s term): For a married couple, it becomes moreprobable that at least one spouse might live beyond the age of 78-80 compared to thesingle claimant scenario. This gives them the opportunity to plan their Social Securityincome election to take advantage of the break-even breakdown scenario. By employingSocial Security income spousal planning strategies, married couples can potentiallylessen the age 78-80 break-even point that a single claimant encounters.Male Life Expectancy (author’s term): According to some studies, at age 65 a healthymale has roughly a 50% probability of reaching age 85. Note: It is imperative for afinancial advisor to have at least a general understanding of life expectancies whenguiding singles and couples with their Social Security income election.23 ClientFirst.info
  33. 33. Table of ContentsFemale Life Expectancy (author’s term): Studies also cite that at age 65 a healthyfemale has roughly a 50% probability of reaching age 88 and a 25% probability ofreaching age 94.Married Couple Life Expectancy (author’s term): The studies further show a healthy65 year-old couple has roughly a 50% probability of at least one spouse reaching age92.Primary Wage Earner: The spouse with the greater monthly PIA Social Securityincome benefit.Secondary Wage Earner: The spouse with the lesser monthly PIA Social Securityincome benefit.Spousal Income Benefit: A spouse―even a spouse with no income history―cancollect 50% of his/her spouse’s PIA amount at age 66. The spouse not receiving thespousal income benefit must either file and be collecting his/her benefit or must havefiled and suspended his/her application at FRA age 66.Dual Entitlement: A spouse is entitled to the larger of the two benefits, either benefitsbased on her/his own earnings record or, if eligible, spousal benefits. The same appliesto a widow(er) who is entitled, if eligible, to survivor benefits.Switch Strategy: A spouse can switch from his/her spousal benefit to his/her ownbenefit. Or he/she can switch from his/her benefit to the spousal benefit. Note thatcertain rules and caveats do apply.Spousal Survivor Income Benefit: When one spouse dies, the surviving spousereceives either the deceased spouse’s benefit or his/her own benefit―whichever ishigher!File & Suspend Claiming Technique: Typically, at FRA age 66, the primary wageearner files and suspends his/her application, stating they intend to begin collectingSocial Security income at a later date. This allows his/her monthly income benefit tobuild delayed retirement credits and raises the future income amount when claimed. Thesecondary wage earner then claims his/her spousal benefit at age 66 for 50% of theirspouses PIA monthly income amount.Claim-Now-And-More-Later Technique: One spouse files a restricted application tocollect a spousal income benefit. At a later point this spouse then switches to his/herown record to collect greater income resulting from the buildup of his/her own delayedretirement credits. (Note: There are elements and caveats to this strategy beyond thescope of this discussion.)Social Security Income Benefit Software Analysis (author’s term): A Softwareprogram where you may enter data such as client(s) age(s), PIA amounts and/orearnings histories and assumptions, such as life expectancy and inflation. The programthen generates an optimal or perhaps several optimal Social Security Income electionscenarios to help guide the client to their best-fit solution. Data output and reports mightinclude standardized age 62, 66, and age 70 benefit amounts as well.24 ClientFirst.info
  34. 34. Table of ContentsNine Important FAQs That Can Help Financial Advisors Support Their Clients1. How much more Social Security income can I help my clients get?Singles and couples, in particular, might often forego hundreds of thousands of dollars inlifetime income by making their Social Security income election decision in haste withoutplanning. Consumers quite frequently miss out on collecting tens of thousands of dollars whenmaking this income election decision.2. Why is it so critical that my client makes their income election correctly thevery first time?Once your client makes their Social Security income election, they now have only 12 monthsfollowing claiming their income election to fix it. As of December 8, 2010, Social Securityestablished a 12-month time limit for the withdrawal and “re-do” of applications and now allowsonly one “re-do” per lifetime. The takeaway here... when your clients choose their SocialSecurity income election, be sure they do it correctly the first time.3. How much will my clients’ Social Security monthly income be reduced if theyclaim benefits early? How much if they wait?A claimant’s benefits are reduced about half of 1 percent for each month Social Security iselected before his/her full retirement age. For example, if his/her full retirement age (FRA) is 66,and they claim at age 62, he/she would only get 75% of their full benefit. If your client waits untilage 70, and FRA is age 66, they will receive 132% of their age 66 PIA benefit income amount.4. How can claiming early adversely impact my client’s lifetime income?If your client lives beyond the “break-even ages” of around 78-80, he/she can significantlyshortchange his/her own income stream. Claiming early can also greatly constrain theexercising of spousal income benefits and switches that can potentially generate more income.Perhaps, most importantly, if a male spouse claims early, he may greatly reduce the lifetimeincome stream his surviving spouse receives since she typically has the longer life expectancy.5. How important is the spousal income benefit for maximizing my client’slifetime Social Security income?It is extremely important. Harnessing and capturing the spousal income benefit is a keycomponent of some of the more advanced, little-understood Social Security claiming strategies.The spousal income benefit and/or spousal switch strategies are typically an integral component25 ClientFirst.info
  35. 35. Table of Contentsof both the “Claim-Now-And-More-Later” and the “File & Suspend” technique. The utility of thespousal income benefit is further illustrated within the Chapter 6 case studies.6. What is the “Age 78-80, Break-even” concept and how might it impact mysingle clients with respect to optimizing their Social Security Income Election?When a single person claims his/her benefit at age 62, he/she receives a smaller monthlySecurity income check, but potentially for a longer period of time. If he/she claims between ages63 and 70, he/she will progressively receive larger income checks, but for a lesser period oftime. If this person anticipates living past age 78-80, then it could be better to elect the FRAbenefit at age 66 or even accumulate delayed credits until age 70 then claim. (Note: Forsingles, there may be multiple break-even points typically between age 78 and 80.)7. What is the “break-even breakdown” concept and how might it impact mymarried clients with respect to optimizing Social Security Income?A healthy 65 year-old couple statistically has a 50% chance of at least one spouse reaching age91, well past the age 78 break-even point for one person. Couples can potentially use somecombination of exercising their spousal benefit election option via claiming strategies such as“File & Suspend” and “Claim-Now-And-More-Later” to lessen these break-even age timelines;this phenomena can be informally referred to as “break-even breakdown.”8. What is Social Security income optimization and why is it important for myclient?Social Security income optimization can be viewed as the science and―to a degree―art ofhelping your clients make a customized, optimal income election decision based upon theirunique financial and personal situation. The determination involves incorporating Social Securityprinciples, their personal health, employment situation, earnings history, retirement savings andboth their near-term and long-term financial income needs into the calculation.9. How can Social Security income optimization software help me assist myclients with making smarter Social Security income decisions?Recently, software developers have designed more powerful programs to help you and yourclients do the math to make an intelligent Social Security income planning decision. The SocialSecurity claiming rules and caveats can be complex; a program employing sound algorithmscan help do most of the sorting through the rules and analyze the hundreds upon hundreds ofpossibilities for your clients.26 ClientFirst.info
  36. 36. Table of Contents“Do you dare to stay out? Do you dare to go in?How much can you lose? How much can you win?—Dr. Seuss, Oh, The Places You’ll Go!Chapter 5: 6 SOCIAL SECURITY CONCEPTS CLIENTS NEED TOLEARNAddressing their key issues to maximize Social SecurityFor us to guide our clients and help them make their best-fit Social Security income electionstrategy, we must first educate our clients and ourselves. As mentioned earlier, the intent of thiseBook is to address the main body of the Social Security income planning octopus. Our goal isto help you learn the most relevant 20% of the Social Security rules, concepts and applicationsto help you solve 80% of you client cases.To better educate our clients we must first have an appreciation for what they need to learn (i.e.understand their respective Social Security income knowledge voids). Also, we need to have agood understanding of the client’s “What’s in it for me.” Typically, the “what’s in it for the client”with respect to Social Security income planning is:• The client wants to get the greatest amount of Social Security income possible in theirlifetime, and• They want to optimize their income election to meet their unique personal financialsituation.Helping your clients elect their Social Security income benefit may be one of the most beneficialfinancial consultation services you can provide. You have the unique opportunity to help singles,and especially couples, collect anywhere from tens of thousands of dollarsto hundreds of thousands of dollars of additional income over theirlifetime(s) by helping them make an intelligent Social Security incomeelection decision.There are a multitude of possible combinations for how your clientschoose their Social Security income election; the election process canbe quite complicated and often confusing. Literally hundreds of strategic27 ClientFirst.info
  37. 37. Table of Contentscombinations are available to claimants seeking to maximize and optimize their lifetime SocialSecurity income benefit. Few financial professionals understand how to navigate the SocialSecurity income election waters. Furthermore, only a handful of diligent pre-retirees and retireesinvestigate this important money decision at a deeper level. Thus, as a financial advisor, you arein the unique to position to help them.Helping your clients maximize their Social Security income benefit requires education, goodplanning and the application of smart decision tools. Our Social Security income planningresearch and direct field experience shows there are essentially six important concepts andtools that consumers need to gain a better understanding with respect to making smarter SocialSecurity income election decisions. Throughout the balance of this chapter, we highlight thesesix important tools (i.e. both financial concepts and planning tools) that pre-retirees and retireesshould consider learning about and/or utilizing when evaluating their Social Security claimingstrategies.Tool #1: When You Claim Social Security, Get it Right the First TimeThe Social Security Administration implemented an important rule change, effective December8, 2010, that places a limited timeframe constraint for when claimants can fix and re-do theirSocial Security Income election. Claimants now have only 12 months from the date they filedtheir claim to choose a more favorable election method.Prior to December 8, 2010, anyone who had been receiving Social Security income—regardlessof when they filed—could pay back the income they had received and re-elect their SocialSecurity income choice. Effectively, these folks were receiving an “interest-free” loan fromSocial Security, and the government decided to put an end to this loophole.What does this important ruling mean for claimants? They now must be more diligent than everwhen choosing how and when to take their Social Security income:• If a claimant made an income election within the past 12 months, he/she should considerreviewing it closely with a qualified financial advisor. There may still be time to re-file ifanother strategy is a smarter choice.• If a claimant is about to file a claim, he/she should be sure to evaluate the benefitelection options thoroughly.28 ClientFirst.info
  38. 38. Table of ContentsIn summary, it is more crucial than ever to claim Social Security income correctly the first time.Tool #2: Understand the Impact of Claiming Social Security too EarlyResearch studies indicate about half of all Americans file during their first year of eligibility—typically age 62. Unfortunately, for a good portion of these folks, this could be a costly mistake.Filing early could mean forgoing thousands of dollars, and in some instances (especially withcouples), over hundreds of thousands of dollars of their total lifetime income stream.Although claimants certainly can file at 62 for benefits, most Americans will obtain greaterlifetime income amounts by waiting until they reach age 66 or even 70. While this can, in certaincases, be a gamble, it can often be a more prudent choice.If a claimant decides to claim his/her benefit early at age 62, a smaller check is received for alonger period of time. If, however, the claim is made later at 66 or 70, a larger check will bereceived for a shorter time period. Ages 78 to 80 are often called the break-even ages. Ifclaimants anticipate living beyond these ages, it could make sense for them to claim SocialSecurity at a later age. Some statistics show that for a healthy married couple age 65, at leastone person has a 50% chance of living to age 92.TOOL #3: If Married, Harness Your Living Spousal Income BenefitMarried couples, in particular, can employ creative strategies to maximize their lifetime SocialSecurity income. To do this, they must pay close attention and learn the rules. For example,couples should consider the often overlooked, yet powerful, benefit called the “spousal incomebenefit.” Understanding how this benefit works and correctly applying it in Social Securityincome planning can be a significant generator of additional income for a couple.For example, a spouse with a low earnings history or a spouse who never worked can collect upto one-half of the primary earner’s (i.e. spouse with the highest benefit) Social Security incomevia the spousal income benefit. Had this lower-earning spouse filed on his/her own record,he/she might receive very little, and in some cases, no Social Security income. Please note thatthere are some rules, caveats and exceptions that apply to the spousal benefit. Couples shouldcontact a qualified financial advisor to assist them with understanding the intricacies andclaiming methods for this benefit and how it might apply and potentially benefit them.29 ClientFirst.info
  39. 39. Table of ContentsAlso, few Social Security claimants—as well as many financial counselors—are aware spousescan switch from the spousal benefit to his/her benefit or vice-versa. Properly activating andtiming the spousal income benefit is an important part of maximizing Social Security income.Correctly timing the use of this benefit becomes a function of each spouse’s age, their SocialSecurity earnings history and the optimal time to implement the benefit. Once again, claimantswould benefit from consulting a qualified financial advisor for details on these spousal switchingrules.Tool #4: If Married, Leverage and Maximize Your Survivor Benefit Income StreamCouples will often neglect planning for their Social Security income benefit in the context of thesurvivor benefit. Women typically outlive their spouse by three to four years. And they often facelonger periods of disability than men during the latter years of their lives. These prolongedperiods of adverse health or disability can result in significant financial duress to the survivingspouse.As discussed earlier, studies show that for a healthy couple age 65, at least one person has a50% chance of living to age 92. Furthermore, at least one spouse has a 25% chance of living toage 97, typically the female.Following the death of a spouse, the survivor receivesone Social Security income check instead of two. Insome instances, the survivor’s employment pensionincome might be reduced or altogether eliminated.Therefore, it is critical for the surviving spouse tomaximize his/her Social Security survivor benefit tomake up for these potential income reductions.One benefit of Social Security is that when a spouse passes on, the other spouse will “bump-up”to that spouses benefit if it is higher than his or her own benefit. Typically, for the survivor tocapture the highest Social Security income benefit, it is advantageous to have the spouse withthe higher Social Security income benefit delay claiming benefits until age 70.A spouse can potentially drastically “short-change” his/her surviving spouse by taking SocialSecurity early. For example, let us say Jim decides to claim at age 62 for $1,725 per month. If30 ClientFirst.info
  40. 40. Table of ContentsJim waited until age 70, his income amount would step up to about $3,036 per month, a 176%increase greater than his age 62 amount.Let us go ahead and include two claiming scenarios. First, we assume Jim and Linda are thesame age. Second, we further assume Jim dies at age 77, and Linda lives to 93. Jim receives$1,725 a month if he claims Social Security at age 62 and $3,036 if he claims at age 70. If Jimclaims at age 62 and dies at 77, then Linda would receive $1,725 monthly for the rest of her life.However, if Jim waits and claims at age 70, Lindawould receive about $3,036 per month. This representsan increase of $1,311 a month, which is substantiallymore than if Jim had claimed at age 62.Furthermore, if Jim claims at age 70 versus age 62, Linda would receive an additional $251,712of income during her 16 years of widowhood. In summary, the survivor benefit is a substantialplanning consideration, which, if ignored, can be detrimental to the surviving spouse’s financialwell-being. The survivor benefit is especially important to females, because they typically outlivetheir male counterparts. Planning for a strong survivor benefit is a significant element ofcomprehensive, intelligent Social Security income planning for couples.Tool #5: Work With a Social Security Specialist to “Do the Math” to Determine Your Best-fitClaiming StrategyFew financial professionals are fluent and experienced in both the science and “art” of SocialSecurity income planning. Accountants and tax professionals are often focused on traditionalpractice areas, such as tax preparation, tax auditing, and bookkeeping. The vast majority offinancial advisors work primarily in the area of investment management and administrativelymaintaining client relationships.Social Security administration personnel are typically involved with helping the public withinformation requests, case management and routine claiming requests. The local SocialSecurity staff is typically not allowed to provide customized financial advice or to suggest case-by-case Social Security optimization financial planning recommendations for singles or marriedcouples.It is essential for consumers to make the effort to locate an advisor who specializes in SocialSecurity income planning. An advisor will help claimants understand the concepts and tools putContrary to what many mightassume, Social Security incomeplanning is an emerging area inthe financial services.31 ClientFirst.info
  41. 41. Table of Contentsforth in this writing. An advisor specializing in Social Security planning will have dedicatedsoftware to help claimants evaluate the hundreds upon hundreds of Social Security incomeclaiming possibilities to help them optimize their income. Contrary to what many might assume,Social Security income planning is an emerging area in the financial services. The rules forelecting Social Security have been changing. Consequently, it is advantageous for prospectiveSocial Security claimants to take extra time to find a qualified Social Security planningprofessional who can help with their election decisions.A significant portion of pre-retirees and early retirees do not “dothe math” to make the optimal Social Security income decisionfor their unique situation. First of all, many folks are not awarethat these Social Security claiming strategies even exist. If theyare aware, many do not take the time or are not counseled by afinancial advisor who is familiar with how to maximize SocialSecurity income. Failure to examine and implement theseadvanced claiming strategies can result in a significant reduction inlifetime income for many retirees.There are compelling financial income incentives for applying some of the advanced claimingstrategies. Depending on a couple’s Social Security “vitals” (earnings history, relative ages, andlife expectancy) and goals, they may wish to apply claiming strategies such as the “File &Suspend” or “Claim-Now-And-More-Later.” In short, these strategies all involve the timing offiling for benefits and utilization of the spousal and survivor benefit concepts described earlier inthis report to maximize lifetime income.A significant portion of those who claim Social Security execute the “land grab” strategy andtake it as soon as possible at age 62. Others partially understand the potential merits of waitingand claim later at age 66 or 70. Those who become educated and carefully apply theseadvanced claiming strategies may be rewarded with significant additional retirement income.Tool #6: Orchestrate Your Social Security Election Plan in the Context of Your RetirementIncome Stream and Investment HoldingsSome Social Security claimants think their Social Security income will always be completely tax-free. For many, this may not be the case. Up to 85% of Social Security income may be taxabledue to what is called provisional income. Provisional income, according to Kevin McCormally of32 ClientFirst.info
  42. 42. Table of ContentsKiplinger, is “... basically your adjusted gross income plus any tax-exempt interest, plus 50% ofyour Social Security benefits.”Several sources of income can contribute toward triggering the provisional income taxationthresholds. These income sources may impact the taxation of a claimant’s Social Securityincome benefit. These income sources include, but may not be limited to:• Distributions from your 401k or IRA account(s)• Wages, pension income• CD, money market, savings interest• Dividends from stocks, bonds, mutual fundsOf course, if mindful, the Social Security income benefit taxation can potentially be reduced.Therefore, it is important to investigate and determine in which sequence a claimant might drawupon his/her retirement income stream and/or retirement asset buckets. When and how SocialSecurity income is elected can significantly enhance or reduce the longevity of a household’sretirement assets and income stream. Questions claimants need to consider:• Should I take Social Security early or later?• Which Social Security income election strategy will present the most lifetime income?• Does it make sense to first draw upon the 401k and/or IRA account(s) and then claimSocial Security later?• Does it make sense to re-distribute some assets into other investment vehicles thatminimize, or altogether possibly eliminate, the taxation of Social Security benefit?Chapter SummaryAs financial advisors, we need to fully understand the Social Security income planning conceptsand considerations highlighted in this chapter, which uncover many important elementsnecessary to help our clients maximize and optimize their Social Security income election.We need to develop the knowledge, resources, and practical experience to help guide ourclients through the Social Security income election maze. If you are a financial advisor with aholistic practice approach, you will need to help your client synchronize their Social Securityincome election with their bigger picture retirement income plan. Your client’s Social Security33 ClientFirst.info
  43. 43. Table of Contentsincome election could be one of the most important money decisions they make in their lifetime,so you will want to help them do everything possible to get it right the first time.34 ClientFirst.info
  44. 44. Table of Contents“Why, I’d have a scramble more super than super!Scrambled eggs Super-dee-Dooper-dee-BooperSpecial deluxe à-la-Peter T. Hooper!”—Dr. Seuss, Scrambled Eggs Super!Chapter 6: FIVE RELEVANT CLIENT CASE EXAMPLESApplying concepts and adding value for your clientsThe objective of sound Social Security income planning isto help better serve our clients by assisting them withmaximizing their lifetime Social Security income whilesimultaneously developing an overall best-fit solution. Aquality best-fit solution includes maximizing their SocialSecurity income stream as well as augmenting cash flowand enhancing the longevity of their retirement incomestream.We can consider this chapter as a demonstration of Pareto’s 80/20 rule within the realm of whatmight be considered somewhat commonly-encountered Social Security income planning cases.We will apply the most relevant 20% of the Social Security income planning tools you havelearned thus far in this eBook to each of the five cases. By having a good understanding of therules and techniques applied in these cases, you should obtain a better understanding ofconcepts and techniques which may help you offer solutions for roughly 80% of your clientcases.Each couple’s—or single person’s—unique Social Security “vitals” will determine which electionclaiming strategy might work best for them. Their best-fit Social Security optimization strategy istypically a function of their Social Security “vitals,” such as age, respective and relative primaryinsurance (PIA) amounts, projected lifespan and unique financial circumstances. Some rules-of-thumb apply to many client situations. However, each client is unique and for many of them wemust be prepared to design customized, best-fit solutions for their specific financial situation.Of course, there is an endless possibility of potential client income planning case scenarios youmight encounter. Each client will have a unique earnings history, varying projected estimates forHowever, each clientis unique and formany of them we mustbe prepared to designcustomized, best-fitsolutions for theirspecific financialsituation.35 ClientFirst.info
  45. 45. Table of Contentslife expectancy and unique cash flow needs and goals. This makes it critical to employintelligent software that can run the complex algorithms to generate your client’s best-fit lifetimeelection decision. Candidly stated, within the specialty financial planning niche of Social Securityincome planning, quality software will be your best friend.In this chapter we examine five Social Security income planning case studies. The first two casestudies (Cases 1 & 2) illustrate married couples, each couple having distinctly different SocialSecurity earnings histories and life expectancies. Case studies 3, 4, and 5 are directed towardhelping you better understand Social Security income claiming issues and strategies within therealm of the female demographic. These three case studies address women in each of theirvarious single relationship states: single-for-life, divorced, and widowed.Because a good portion of American couples claim Social Security early, the surviving femalespouse, due to her longer life expectancy, can often be adversely impacted by the maleclaiming Social Security income at an early age. Addressing this potentially adverse situation forfemales requires advisors to become knowledgeable about the extended life expectancies ofwomen relative to men. Women, in particular because of the likelihood of spending some time inwidowhood, should pay very close attention to their spouse’s Social Security income electionclaiming strategy.Case Study #1: Jim & Linda Heartland, Unequal Earnings Histories (large PIA difference). “File& Suspend” StrategyJim and Linda Heartland can be considered a more “traditional” couple. Jim worked full-timethroughout his career and was a strong wage earner. He has a PIA of $2,300. Linda was a stay-at-home mom who worked mostly part-time jobs and has a PIA of $300. Jim, age 66, is fiveyears older than Linda, who is age 61.They have discussed their life expectancies and family health histories, determining that Jimexpects to live to age 77 and Linda to age 93. Because Linda expects to live quite a bit longerthan Jim, one of their main planning concerns is that she collects as much Social Securitysurvivor benefit income as possible throughout her years as a widow.After a careful review and calculation of various scenarios, it is determined that the Heartland’soptimal Social Security income election involves a specific sequence of claiming steps and that36 ClientFirst.info
  46. 46. Table of Contentsthey employ the “File & Suspend” strategy to generate a higher amount of total lifetime SocialSecurity income. We highlight the Heartland case in the following video:Video: Case Study #1View a video software demonstration of the Heartland “File & Suspend” case solution.Case Study #2: Bob & Mary Metro, Similar Earnings Histories (similar PIAs) Claim-Now-And-More-LaterBob and Mary Metro are a working couple considering retirement soon (Figure 6a). They havehad a life expectancy “chat” and have placed their projected life expectancies at 82 and 86 forBob and Mary, respectively. Mary is the primary wage earner with a projected PIA of $2,200 andBob is the secondary wage earner with a PIA of $2,000. The Metros both have a fairly strongand relatively equivalent Social Security earnings history. Bob and Mary’s situation can beconsidered to portray a “modern day family,” a couple where both spouses have continuallyworked throughout their careers and might tend to reside either within or near a metropolitanarea.37 ClientFirst.info
  47. 47. Table of ContentsFigure 6a: The Metros Social Security “Vitals”(Source: Social Security canGROW Your Financial Practice Tool Kit™, ClientFirst Financial)In the case of the Metros, the Claim-Now-And-More-Later strategy yields the greatest lifetimeincome benefit for Mary and Bob. Mary, between ages 66 and 69, collects her $1,000 monthlyspousal income benefit off John (1/2 of John’s $2,000 PIA amount). Bob begins collecting hisown benefit of $2,320 per month at age 68 and collects this income until his passing at age 82.At age 70, Mary switches to her own higher benefit amount of $2,904. Note that Mary’s ownbenefit has grown “in background” to $2,904 at age 70 from her age 66 PIA amount of $2,200.When Bob dies at age 82, Mary retains her own higher benefit amount of $2,904 for the balanceof her life (i.e. until she passes at age 86). This strategy is illustrated in Figure 6b.Figure 6b: The Metros Claiming Strategy(Source: Social Security canGROW Your Financial Practice Tool Kit™, ClientFirst Financial)38 ClientFirst.info
  48. 48. Table of ContentsThe Claim-Now-And-More-Later technique yields the greatest lifetime income amount for Boband Mary at $1,000,552 (Figure 6c). This exercise shows how the Metros can maximize theirlifetime Social Security income. However, holistic financial planning practices suggest weoptimize the Metro’s Social Security income decision to dovetail with their specific unique cashflow and retirement income needs. For example, if Bob and Mary need more cash flow duringtheir early to mid-60s, one or both need to elect and take the Social Security income earlier.This, of course, might reduce the chances of them capturing the greatest lifetime incomeamount.Figure 6c: Metro’s Lifetime Income Benefits(Source: Maximize My Social Security, Economic Solutions)Bob and Mary’s big picture objective is to determine which Social Security income electionclaiming technique(s) will help them both maximize their lifetime benefit amount and optimizecash flow needs and goals. Of course, their total resultant lifetime income amount will bedependent upon their income election age(s), their actual life expectancy experience and theirselected claiming techniques.39 ClientFirst.info
  49. 49. Table of ContentsFigure 6d below illustrates the early election age, age 66 (FRA, Full Retirement Age), andRecommended Strategy Age total lifetime dollar income benefit amounts. These respectiveamounts are further calculated and displayed in terms of short, normal and long life spanscenarios, which are 10 years less than, equivalent to, and 10 years greater than Bob andMary’s earlier stated lifetime expectancies. The normal life span scenario is the projected lifeexpectancies of 82 and 86 that Bob and Mary have previously provided.Figure 6d and Table 6b: Lifetime Benefits versus Life Spans(Source: Social Security canGROW Your Financial Practice Tool Kit TM, ClientFirst Financial)40 ClientFirst.info
  50. 50. Table of ContentsVideo: Case Study #2View a video software demonstration of the Metro case solution.The Sally Case StudiesCase Study #3 – Sally Solo, Single-for-life, Never MarriedSally Solo is a single woman who has never married. She hasworked full-time for many years and wants to retire at age 60to pursue other opportunities. Based on her health and familyhistory, she projects her life expectancy to be 88. She has a PIAof $1,600. Taking into consideration her budget, cash flow needs, and retirement savings, shewants to know if she should file her claim for Social Security income at age 62, 66 or 70.If she files at age 62, she will receive a monthly amount of $1,207 (75% of $1,600) for 26 years.Claiming at age 66 will allow her to collect her full PIA of $1,600 a month for 22 years. Bywaiting until age 70 she will collect a monthly amount of $2,112 (132% of $1,600) for 18 years.41 ClientFirst.info
  51. 51. Table of ContentsWaiting to claim until age 70 turns out to be Sally’s best claiming strategy and will provide herwith a lifetime benefit of $481,536. Her worst strategy is claiming at age 62, which would onlygive her $376,584 over her lifetime, a difference of over $100,000.The graph below (Figure 6e) shows Sally’s situation. You can see that by claiming at age 62she receives a smaller monthly amount over a longer time period. By waiting to age 70 shereceives a larger monthly check for a shorter time.Figure 6e: Sally Solo—Single, Cumulative Lifetime IncomeNotice that between roughly ages 78 and 81, all three strategies for Sally have nearly the sametotal lifetime cumulative earnings up to those times. These are typically referred to as“breakeven” ages. If Sally had a life expectancy of 78 or younger, her best claiming strategywould be to claim and begin collecting at age 62 since she would then collect a larger totalcumulative benefit amount by age 78. Since she expects to live to age 88, delaying her electionage to 70 is to Sally’s advantage.Case Study #4 – Sally Solo, Divorced (claims ex-spousal benefit)Consider now that Sally Solo’s relationship status is a 62 year old divorced woman. She has theoption of collecting a divorced spouse (or ex-spousal) benefit off her ex-husband’s earnings ifher situation meets certain criteria. In order to be eligible for a divorced spouse benefit, thefollowing conditions must be met:42 ClientFirst.info

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