Demand for Social Security advice increases

While recent headlines have focused on the “Great Resignation,” and the nearly 20 million American workers who have quit or changed jobs this year, less attention has been paid to another emerging trend: a pickup in retirements.

The aging baby boomer generation, with 10,000 people turning 65 every day, combined with the Covid-19 pandemic, has led to a surge in retirements over the past two years.

As of the third quarter, 50.3% of U.S. adults 55 and older said they were out of the labor force due to retirement, according to a Pew Research Center analysis of the most recent official labor force data. In the third quarter of 2019, before the onset of the pandemic, 48.1% of adults in that age range reported they were retired.

The impact of the Covid-19 recession on retirement marks a significant change in a long-standing historical trend toward declining or steady retirement rates among older adults, the Pew analysis found. Between the Great Recession in 2008 and the pre-pandemic era of 2019, the retired population ages 55 and older grew by about 1 million retirees per year. In the past two years, the ranks of retirees 55 and older have grown by 3.5 million.

One of the first questions that most clients answer when considering retirement is “What should I do about Social Security?” said Jeff Quigley, vice president at LifeYield, a fintech company that helps advisers maximize retirement income for clients.

“With more than 2,700 rules, Social Security is a minefield unless advisers turn to technology to customize answers to that question for every family,” Quigley said.

“Advisers can demonstrate the benefits of a custom strategy for Social Security and then proceed to in-depth conversation on strategies for accumulation and retirement income,” he explained, adding that one of his colleagues jokingly refers to Social Security claiming discussions as the “gateway drug to financial planning.”

Although numerous software firms, such as Social Security Analyzer, Covisum and Income Conductor, help advisers provide customized Social Security claiming strategies to their clients, LifeYield’s recent usage data is significant because the company works with some of the nation’s largest financial institutions, including Merrill, New York Life, Franklin Templeton, Allianz and Northwestern Mutual. More than 70,000 affiliated financial advisers use its Social Security+ tool.

In 2021, financial advisers increased their use of the LifeYield Social Security+ tool by 10% compared to 2020. An analysis of nearly 67,000 reports created by advisers using the LifeYield tool showed that projected income from the optimum Social Security filing strategy was more than $10 billion larger that clients would have collected on their own before consulting advisers.

On average, clients increased their anticipated lifetime Social Security benefits by more than $150,000 per household by following the “optimal” recommendation of the LifeYield tool compared to the “custom” strategy, which assumes an individual files for Social Security benefits immediately upon retirement when their income stops.

For married couples, an “optimal” strategy often includes at least one spouse delaying benefits until age 70 to create the maximum possible retirement benefit while both spouses are alive, which often translates into the largest possible survivor benefit for the remaining spouse. At that point, the survivor’s smaller retirement benefit would end.

The Social Security Administration is doing its part to help Americans make smarter Social Security claiming decisions. The newly redesigned benefit statement that's available to any worker who does not receive Social Security benefits gives estimates of future Social Security benefits that a worker and dependent family member may receive each month. It includes a bar chart with personalized retirement benefit estimates for up to nine different claiming ages.

The statement, written in plain language, includes a basic overview of the Social Security program and explains key facts, such as that your claiming age could affect the benefit amount for a surviving spouse and that divorced individuals who were married at least 10 years may be able to claim benefits on an ex’s earning record. The statement provides a record of the worker’s earnings history on which future benefits are based and explains how to report any errors.

Fact sheets tailored to a worker’s age group accompany the online statement. For example, a fact sheet for older workers explains how benefits may be taxed, how to avoid a Medicare delayed enrollment penalty, and why they shouldn't postpone claiming Social Security beyond age 70, when delayed enrollment credits end.

[Questions about Social Security rules? Find the answers in Mary Beth Franklin’s ebook at Maximizing Social Security Retirement Benefits]