The financial planning industry is at a turning point in how to address Social Security and Medicare as part of overall retirement planning. Although numerous surveys have shown that more than half of retirees and pre-retirees expect health care and Social Security advice from their financial adviser, the percentage of advisers who are willing and qualified to offer this type of advice remains low.
“This presents a major opportunity for advisers and firms that do offer this specialized advice to differentiate themselves and gain market share,” according to a new white paper produced by Senior Market Sales Inc., a national insurance marketing organization. “Those who continue to ignore the role that Medicare and Social Security play in retirement risk losing clients,” the paper concluded.
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"The New Foundation of Retirement Planning: Social Security and Medicare" white paper doesn't break new ground. Rather, it synthesizes several recent reports about retiree health care costs and retirement planning that point to a growing need for specialized retirement planning advice.
The original data is gleaned from government sources, including the Social Security Administration and Census Bureau, and prominent research reports from Merrill Lynch, Nationwide Financial Retirement Institute and the Employee Benefits Research Institute, among others.
Although Senior Market Sales is in the business of helping financial advisers identify the best Social Security claiming strategies and find the right Medicare health insurance plan, I think the paper makes some interesting points and identifies some salient trends.
It notes that client expectations are changing for a number of reasons. For many people, health care costs will be one of the most significant expenses during retirement. Although some people mistakenly believe Medicare covers all health care costs in retirement, in reality it only covers about 62% of the cost of health care services, not including long-term-care costs. And the share of health care expenses that Medicare beneficiaries pay is expected to increase in the future.
“Helping clients address the retirement health care cost crisis is not only an opportunity, but also a necessity, as it currently dominates retirees' concerns and likely will for years to come,” the paper said.
For many retirees, their second greatest fear is running out of money. Social Security is one of the few sources of retirement income that clients can't outlive. The paper cites an Urban Institute report that estimates the average married couple receives about $556,000 in lifetime Social Security benefits.
“If a half a million dollars is not enough to convince today's financial adviser that Social Security deserves a seat at the table, then Social Security's role in the context of Medicare should,” the paper said. It pointed to a Nationwide consumer survey that showed nearly three in four Americans say Social Security is their top source of expected retirement income to pay for out-of-pocket health care costs. Monthly Medicare Part B premiums, which vary based on income, are deducted directly from Social Security benefits.
“As retirees see more of their Social Security benefit eaten up by health care costs and push back retirement dates to pay for health care, financial advisers cannot afford to ignore the role that health care costs play in people's retirement plans,” the white paper said.
An increasing number of retirees and pre-retirees are looking to financial advisers for Social Security claiming advice. A 2013 survey by Social Security Timing, a software company owned by Senior Market Sales, found that 60% of respondents wanted their financial planner to analyze their Social Security claiming options and 61% said they would look for another adviser if theirs couldn't recommend an optimum Social Security claiming strategy. Yet a 2014 report by Practical Perspectives and GDC Research found that only 36% of financial advisers recommend specific Social Security claiming strategies and only 13% offer health care advice.
“The bottom line is the financial planning industry as a whole is not meeting expectations when it comes to incorporating social insurance into the financial plan,” the white paper concluded. “That means there is an immediate opportunity for advisers who do step up and offer these services to differentiate themselves from the majority who don't.”
It's also a great way to combat the rise of robo-advisers. “Financial advisers will find greater opportunity in helping consumers maximize their Social Security and minimize health care costs than in solely focusing on investment and tax strategies,” the white paper said. “Those who can synthesize advice on a variety of complicated topics into a comprehensive retirement plan will provide value above and beyond what's available through technology alone.”
It could also play a role in the ongoing debate over fiduciary responsibility. “If you ignore Social Security and Medicare decisions, I don't believe you are acting in your clients' best interests,” said Chris McDonald, associate director of institutional sales for Senior Market Sales and a contributor to the report.
