When clients count on Social Security

Since retirement and Social Security go hand in hand, your clients may be counting on their benefit checks to provide them with significant income when they retire. Unfortunately, not everyone qualifies for benefits, and for those who do qualify, Social Security may not provide as much income as they expect. It is never too early to have a conversation about Social Security to help give clients a realistic idea of what to expect from this important source of retirement income.

Qualifying for benefits
Social Security provides a base retirement income for about 95 percent of all workers. In other words, most of your clients can count on receiving Social Security benefits. So, who makes up the other 5 percent? Typically, clients who have worked for the government (city, state or federal), railroads or public schools should look into whether they are covered. If their employer does not require them to pay Social Security taxes and provides them with a pension, they may find their Social Security benefits are reduced or even eliminated.

• The Windfall Elimination Provision (WEP) reduces benefits for retirees who are entitled to a pension from a job that was not covered by Social Security and who also have Social Security benefits based on fewer than 30 years of covered earnings. (The reduction doesn’t apply to those with at least 30 years of covered employment.) Although the WEP reduction affects retirees and eligible dependents, it does not affect survivor benefits.
• The Government Pension Offset (WPO) reduces the benefits of a spouse or surviving spouse of most workers who receive a pension from government employment that was not covered by Social Security.

Of course, some people work and pay Social Security taxes but never reach fully insured status — in other words, they do not earn the required 40 credits over ten years of work. Some individuals in this situation qualify for disability benefits and others (although not everyone) may find they are eligible for benefits on a family member’s or ex-spouse’s earnings record.

Considering the full retirement picture
Clients who expect to receive Social Security benefits cannot count on Social Security to replace the full amount of their previous income. However, these benefits do provide a base for a client’s retirement income. Consider these statistics for individuals and couples age 65 and older:

• Social Security makes up 50 percent or more of total retirement income for 50 percent of married couples and 70 percent of individuals.
• Social Security makes up 90 percent or more of total retirement income for 21 percent of married couples and 45 percent of individuals.

Most people today supplement Social Security benefits with income drawn from:

• Savings and investments (including qualified retirement plans and IRAs)
• A pension (for those lucky enough to have one)
• Annuities (which can convert a portion of savings into a guaranteed income stream a retiree can’t outlive)

Looking to the future
Clients who are counting on Social Security for retirement need a realistic idea of how much their benefit might be and how much additional income they will need to cover their anticipated retirement expenses. A comprehensive retirement planning discussion is a good place to begin identifying and addressing any apparent gap between income and expenses. There are many unknowns, of course — inflation, health care expenses, the overall economy and even the number of years the client will spend in retirement — but thoughtful planning puts clients in the best position to thrive during retirement and adapt to changes as necessary. An annuity may be the right fit for clients who need to fill that income gap and help plan future expenses.

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Use these tools and resources for effective Social Security discussions and to help reinforce client relationships.

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