Social Security has more than 2,000 rules affecting benefits, so it is no wonder few financial advisors understand all the intricacies, says Dr. William Reichenstein.
In a recent seminar of more than 400 advisors, not one in the audience raised his or her hand when asked if anyone there understood Social Security, he says.
Dr. Reichenstein holds the Pat and Thomas R. Powers Chair in Investment Management at Baylor University and is the research principal of the firm Social Security Solutions. He addressed financial advisors at the International Retirement Resource Center in Ann Arbor, Mich., Thursday.
“The staff at the Social Security Administration offices is not trained to advise people when the best time to take benefits is,” he says. You have to know what to ask for before going there.
Knowing the rules and maximizing the benefits from Social Security can extend the life of a portfolio, he advises. Reichenstein and his colleague William Meyer have developed www.SSAnalyzer.com to help advisors determine their clients’ optimum time for starting Social Security benefits. They have also developed www.socialsecuritysolutions.com for consumers.
Given a client's birth date, his amount of primary insurance and his expected longevity, SSAnalyzer.com can determine the best options for taking Social Security benefits. Early takers get less while those who wait get more in monthly benefits. The total amounts even out by the time the clients reach 80.
But it's never simple to determine when to start taking benefits, Reichenstein says. Social Security decreases the benefit for each month it is taken before your full retirement age and increases it for each month you wait afterward until you are age 70.
Reichenstein demonstrates the complexity with a number of scenarios. For instance, a recipient whose full benefit at retirement age will be $2,000 a month and who has a life expectancy of only 76 years may want to take benefits early.
If the client begins earlier, at 62, with a lower monthly benefit of $1,500, the cumulative benefit through his or her 76th year is $252,000.
However, if he or she begins at 64 and a half years of age, the cumulative benefit through age 76 is $248,400 with a monthly benefit of $1,800. By claiming at 64 and a half, the recipient gets less in total but more per month. Reichenstein would recommend the second option.