As the Boomer population ages, questions about how to best utilize Social Security benefits become part of their investment strategy. To adequately advise them, it’s imperative to fully understand how Social Security benefits work.
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The Pension Research Council recently published a study that reveals mistakes that were made in devising investment strategies that also consider Social Security benefits, particularly where widows are concerned.
The Council is a retirement research center affiliated with the University of Pennsylvania’s Wharton School. The study covered both wirehouse and independent advisors as well as others.
It revealed that most advisors overly depend on break-even analysis in designing investment strategies for those clients who are eligible for Social Security benefits.
Break-even analysis shows how long it would take for higher benefits payments resulting from delayed claims to equal the amount received by claiming benefits at an earlier time.
This type of analysis completely ignores the ability of one spouse to receive benefits based on another spouse’s eligibility, especially in the case of delaying benefit claims.
The tendency is for those who are eligible to take the benefits as soon as they can—at age 62. But it could be a greater advantage to delay receipt of Social Security benefits until years later.
It’s difficult to calculate the best benefit claim scenario,
particularly when spousal benefits and delay of claims are considered. There is software you can use that considers all the complexities that arise when you consider the age of beneficiaries, incomes, and longevity expectations.
You can find out more about the software here
. Instead of simply factoring in when Social Security benefits are received, you can do your clients a great service by helping them frame that decision within the scope of these other factors.