What Wealth Managers Need to Know about Social Security Projections

In April, the Social Security Board of Trustees released its annual report, outlining its long-term financial outlook for Social Security. Not surprisingly, it didn’t reveal very good news. Instead, the report confirmed that by 2034, the Old-Age and Survivors Insurance Trust Fund — the part of Social Security that pays the checks that Americans have been counting on since the 1930s — will be exhausted. And while new contributions will allow future payments to continue, unless Congress takes action to sure up the Social Security system, a massive shortfall is inevitable. Anyone collecting Social Security from that point on will see their benefits drop to just 77 percent of their previous payouts. 

Although a growing number of Americans are contributing to defined contribution plans to help fund their retirement, and are therefore becoming less dependent on Social Security, this is not the case across the board. In fact, the Social Security Administration reports that 21 percent of married couples and 44 percent of single individuals are planning to rely on Social Security benefits for at least 90 percent of their retirement income. Meanwhile, many more will depend on those benefits for at least a part of their retirement income.

As a wealth manager, the realities of this shifting retirement landscape present certain challenges. Key among them is figuring out the right planning strategies to use with your clients given their age and unique situation. Even more important is communicating that information in a way that’s clear, that resonates with clients, and that motivates them to take the steps necessary to secure their long-term financial well-being.

Let’s look at some of the advice you might offer your clients depending on how far they are from retirement. We’ll also highlight a couple of examples of how you could use different technology to help smooth that process out.

Who’s ready to retire?

Depending on what stage of life your clients are in, the advice you may want to offer them will vary. Baby Boomers, for example, who are either already in retirement or will be soon, need to plan for a 30 percent reduction in their benefits starting in 2034. Given the relatively small amount of time they have to adapt to this change, their options may be pretty limited. If they’re still working, they could opt to delay their retirement to age 70 or beyond. Doing so would boost their payout levels both prior to and following 2034, while also shortening the number of years they may need to augment in retirement with their own assets. Alternatively, their choices are to find new revenue streams or slash their spending, either of which will result in increased savings, but are still different paths and situations they envisioned for themselves as they neared retirement age. Wealth managers should expect clients to feel frustrated and uncertain about their futures and should approach this group with empathy.

For Gen X-ers and Millennials, the picture looks a bit better, at least in some regards. Admittedly, while neither generation should be banking on Social Security as a source of retirement financing, they at least have the benefit of time to build up assets on their own. Between 401(k)s, 403(b)s, IRAs, and the variety of other defined contribution plans they have at their disposal, with the right strategy and a disciplined approach to investing, they have the opportunity to make up the shortfall. The key here is to look at Social Security benefits as a potential bonus, rather than a guaranteed income stream in retirement. Wealth managers should approach this group with optimism and focus on ways clients can get creative with their investing. More importantly, recognizing and sharing what plan is right for each Gen-X/Millennial client based on their background, personality and long-term goals will ensure client engagement and retention over time.

The reality is that as a wealth manager, when it comes to retirement there are lots of unknowns. You don’t know how long your clients will live, what their long-term healthcare costs might be, or how tax rates could fluctuate in coming years. Likewise, no one knows for certain if any form of Social Security will exist by the time some clients are old enough to start collecting it. For these and other reasons, it’s important to help your clients prepare for the worst-case scenario. To do so, you’ll need to find creative strategies to help them weather an upcoming decline in Social Security payouts or, worse yet, not payouts at all.

How Technology can help

Working with clients and helping to ensure that they’re retirement ready can be a daunting process. Fortunately, there are lots of ways that you can use technology to help. Benefits calculators, for example, are a simple way of determining exactly how their payouts might change over time and how they can offset that with other income streams.

Meanwhile an advisor enablement platform will help you develop and present custom retirement plans to each of your clients quickly and easily. Given the nature of the subject, your clients are going to want to ensure that you’ve heard and understood their unique situation and needs. They’re also going to want a lot of face time to talk through their concerns. Using an advisor enablement solution makes creating personalized customer presentations a fast and seamless process, saving you valuable time that you can instead put toward giving your clients the attention they deserve.

While retirement represents a daunting challenge for some, armed with the customized advice of a good wealth manager, many of your clients will be ready to tackle whatever comes their way—and will be more willing to take you along on the ride.

Wealth Manager's Guide to Advisor Enablement

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