In the future, your clients will need to be realistic about what they will receive from America’s crown jewel entitlement program.
Social Security won’t likely die, advisors say. It will be there for the client in the next decades. But it will also likely have to change, and that means so will the retirement plans of clients with either a little or a lot in private savings. The most likely kind of change will be more cuts.
Retirement clients, especially those with considerable resources, should expect means-testing in the future and likely cuts in the program. (Some cuts have already occurred.)
While advisors at one end of the spectrum are warning their clients that they should plan on getting nothing from a system they’ve paid into for decades, at the other end, clients with fewer resources are likely over-relying on what they will receive. In some cases, advisors say, clients should expect to receive no more than 10 percent of their retirement income from Social Security. Others say 5 percent.
“Both current and future retirees are concerned that the Social Security benefits they’ve been promised won’t be there and should be excluded from financial plans,” said Mark Friedenthal, the founder and CEO of Tolerisk, a Marlton, N.J.-based firm that makes software for advisories.
Friedenthal and others offering retirement planning say advisors should proceed cautiously with the Social Security element of retirement planning, especially with those well prepared for retirement.
Though it’s a conservative approach, “it may also be prudent to exclude Social Security for those [clients] with likely taxable income of $250,000 [present value] or more in retirement,” he says.
“This is likely a client with $10 million-plus in taxable assets or $5 million-plus in traditional IRA/401(k) assets,” he says, “or substantial defined benefit pension income or other taxable income sources.”
Clients Spooked
Adjustments are needed in part because many clients are spooked. Some 59 percent of those recently surveyed by the AARP said it was only “somewhat likely” or “not at all likely” that the combination of their savings, investments and Social Security benefits would be sufficient to cover their financial needs through retirement.