“States like New Jersey and Illinois, which have reduced funding on a continuous basis, now have large liabilities and we have that with city government retirement plans as well,” Kotok said.
On the upside, a state or city-wide shortfall in pension funding benefits can be an opportunity for advisors to position themselves more holistically in their local marketplace.
“There’s no one silver bullet to fill the gap in a funding benefit,” said James Nichols, head of retirement income and advice strategy for Voya Financial. “Advisors can recommend that their clients delay retirement by a year or two, increase savings and take advantage of catch up contributions in their workplace plan.”
Nichols also favors optimizing Social Security benefits as a viable option that is part of a holistic financial plan specifically aimed at covering a pension plan funding gap.
“Taking advantage of a Social Security claiming strategy can create a significant boost to an individual’s overall retirement income stream,” said Nichols.
For married retirees who are 65 and older, Nichols advises a file-and-suspend Social Security strategy where the higher earning spouse files for their benefit but suspends it.
“The higher earner builds a bigger delayed payout in this way and the spouse claims their benefit off that bigger benefit,” Nichols said.
However, after May 1, 2016, the file and suspend strategy will no longer available for those not already grandfathered in.
“There are many other combinations of Social Security optimization strategies that an advisor can create depending on the client’s age and marital status,” Nichols said.