Ascent Media | E+ | Getty Images
Working with a financial advisor should help prospective beneficiaries understand the value of delaying claiming benefits. However, recent research has found that working with a financial professional does not necessarily encourage individuals to claim Social Security later in life.
The study, co-authored by David Blanchett, director of retirement research at PGIM DC Solutions, and Jason Fichtner, chief economist at the Bipartisan Policy Center, found that results vary by advisor type. Wealthy households are more likely to claim benefits after two years if they work with financial professionals who receive hourly wages, such as accountants, compared to households who work with fee-based advisors or brokers.
Wealthy households that work with financial professionals of all kinds, especially brokers, tend to claim Social Security sooner than those who don't, the study found.
The study concludes that delaying Social Security claims may not be beneficial for advisors because it reduces the amount of client assets they can manage and may reduce the complexity of retirement planning.
“This study shows that financial advisors may be biased toward strategies that offer higher advisor compensation, even if that recommendation is not in the best interest of the client,” Blanchett and Fichtner said. he writes.
Joe Elsasser, a certified financial planner and president of Social Security billing software company Covisum, said the findings were “really disappointing.”
“I wanted to at least see the general later.” [claiming age] It’s a trend across all advisors,” Elsasser said.
If a Social Security retiree claims at age 62, their benefits are permanently reduced.
If you wait until your full Social Security claim age (typically between ages 66 and 67, depending on your year of birth), you can receive 100% of the benefits you've earned.
As the full Social Security retirement age moves to 67, the benefits available at age 62 will be further reduced.
By waiting until age 70, retirees receive the largest benefit increase — a monthly benefit that is 77% higher than what a recipient could receive at age 62. The research results point out.
However, deferring until the maximum claiming age requires the beneficiary to have other income to rely on in the meantime. “Delayed claims are more than just lunch,” the study states.
That might mean working longer or bridging to a higher claiming age by looking to other investments first.
Deferring Social Security benefits can be very valuable not only for increased benefits, but also for annual cost-of-living adjustments for inflation. There are no annuities on the market that offer the same inflation link, the study notes.
Granted, not everyone can wait until age 70 to file a claim. Research shows that people who delay are more likely to retire later or have more financial assets.
“Many Americans don't have an active choice in when they file a claim,” Blanchett said.
“If you know you're not sick and you have savings for retirement, you should probably hold off until at least age 65, 67 or 70,” he said.
Not all financial advisors have the same knowledge of the details of Social Security claims, which come with numerous rules.
Experts say there are signs prospective claimants can look to assess the quality of guidance they're getting.
“When a consumer receives an early claim recommendation or approval, they really need to evaluate…'Why is this advisor giving me that advice?'” Elsasser said.
Make sure your financial professional evaluates the process that led to that conclusion, he said. It's often the result of assumptions about lifespans that are too short, or the idea that Social Security benefit income claimed early can be invested.
Consumers can use a free online tool, Actuaries Longevity Illustrator, to gauge estimated lifespan, Elsasser said. Additionally, investment returns compared to Social Security should be based on more conservative holdings like government bonds rather than stocks, he said.
Personal Finance Details:
401(k) rollover advice is poised for big changes.The reason is as follows
Commissioner says more than 140,000 returns were processed during IRS free tax return exam
This is why new home sales are gradually increasing despite mortgage interest rates of 7%.
Documents provided by the Social Security Administration make it clear that determining when to file a claim is a personal decision, said Fichtner, who previously served as the agency's acting deputy director.
Financial professionals should also guide you through similar considerations. How is your health? What other sources of income do you have? If you have a spouse, how will your claim decision affect them?
Most potential Social Security claimants are trying to make their money last, rather than maximize their benefits, Fichtner said.
Therefore, a financial advisor's recommendations, whether made independently or through software, should focus on protecting lifetime income rather than increasing returns, he said.
Studies regularly show that one of the main reasons Social Security recipients claim early is concern about the future of the program. The program's trust fund could be depleted within the next decade, at which point benefit cuts could occur across the board unless Congress acts sooner.
But experts say that's no reason to make an early case. By deferring, future expected reductions will be applied to higher benefit amounts.
Even short-term billing delays of a few months instead of years can help increase your lifetime income.
“Every month you delay, your benefits will increase,” Fichtner said.
