Introduction: Why Maximizing Social Security Benefits Matters
For many retirees, Social Security benefits serve as a critical income source. However, improper claiming strategies or a lack of planning can significantly reduce the lifetime value of these benefits. As a fiduciary financial advisor, it’s essential to help clients strategically optimize their Social Security claims to maximize their income and minimize tax liability.
With over 65 million Americans receiving Social Security benefits, the decisions clients make today will impact their financial security for decades. In this guide, you’ll discover:
Key claiming strategies to maximize benefits
Tax-efficient planning techniques to reduce benefit taxation
Tips on coordinating spousal and survivor benefits
- Advise Clients on Delayed Claiming for Increased Benefits
One of the most effective ways fiduciary financial advisors can help clients maximize their Social Security income is by recommending delayed claiming.
Why it matters:
- Full Retirement Age (FRA) typically ranges from 66 to 67, depending on the client’s birth year.
- For each year a client delays claiming past their FRA, their monthly benefit increases by approximately 8% until age 70.
- Delaying to age 70 results in a 32% larger monthly benefit compared to claiming at FRA.
Example Strategy:
If a client’s FRA benefit is $2,500 per month, delaying until age 70 increases their monthly payout to $3,300—an extra $800 per month or nearly $10,000 more per year.
Pro Tip:
Encourage clients with sufficient retirement savings or other income streams to delay their claim, as it ensures they receive a higher base benefit for life.
- Coordinate Spousal and Survivor Benefits
Fiduciary financial advisors should educate clients about spousal and survivor benefits, which can significantly impact a couple’s total lifetime Social Security income.
Spousal Benefits:
- Spouses are entitled to 50% of their partner’s FRA benefit if claimed at their own FRA.
- Clients can maximize benefits by having the higher-earning spouse delay their claim. This increases the survivor benefit later.
Survivor Benefits:
- When one spouse passes away, the surviving spouse receives the higher of the two benefits.
- Delaying the higher-earning spouse’s claim results in a larger survivor benefit, which is critical for long-term financial security.
Example Strategy:
For a couple where one partner’s FRA benefit is $2,800 and the other’s is $1,400, delaying the higher earner’s claim until age 70 locks in a larger survivor benefit.
- Minimize Taxation on Social Security Benefits
Helping clients reduce tax liability on Social Security benefits is a key value-added service for fiduciary financial advisors.
Tax Considerations:
- Up to 85% of Social Security benefits may be taxable, depending on a client’s provisional income (adjusted gross income + non-taxable interest + 50% of Social Security).
- By strategically managing income sources, clients can reduce how much of their benefits are subject to taxation.
Tax-Efficient Strategies:
- Roth IRA Conversions: Encourage clients to convert traditional IRAs to Roth IRAs before claiming Social Security. Roth withdrawals are tax-free and won’t increase provisional income.
- Tax-Advantaged Withdrawals: Suggest clients withdraw from taxable accounts first to reduce their taxable income before Social Security benefits kick in.
- Qualified Charitable Distributions (QCDs): For clients over 70½, QCDs allow them to donate directly from their IRA—reducing taxable income without increasing Social Security taxation.
Example Strategy:
A client who converts $50,000 from a traditional IRA to a Roth IRA before claiming Social Security could reduce their future tax liability, keeping more of their benefits tax-free.
- Utilize Restricted Application for Maximized Benefits
For clients born before January 2, 1954, fiduciary financial advisors can help them leverage the restricted application strategy, which allows them to claim spousal benefits first while their own benefits grow.
How it works:
- The client files for spousal benefits at FRA and delays their own benefit until age 70.
- This allows them to collect some income while maximizing their own future payout.
Example Strategy:
If a client’s FRA benefit is $2,500 and their spousal benefit is $1,200, they could claim the spousal benefit first. This gives them $1,200 per month while their own benefit continues to grow by 8% annually until age 70.
- Plan for Inflation with Cost-of-Living Adjustments (COLAs)
While Social Security benefits receive annual cost-of-living adjustments (COLAs), these increases may not always keep pace with real inflation.
Advisory Tips:
- Encourage clients to include inflation-resistant assets in their portfolio, such as Treasury Inflation-Protected Securities (TIPS), dividend-paying stocks, and real estate.
- Stress-test retirement plans to account for varying COLA scenarios, ensuring clients are prepared for different inflation environments.
Example Strategy:
By incorporating inflation-hedged investments into their financial plan, clients can preserve their purchasing power even if Social Security COLAs underperform.
Key Takeaway: Fiduciary Financial Advisors Can Help Clients Maximize Social Security Benefits
As a fiduciary financial advisor, helping clients maximize their Social Security benefits is a key value proposition. By offering strategic claiming advice, tax-efficient planning, spousal benefit coordination, and inflation protection, you can significantly enhance their retirement income security.
Implementing these strategies ensures your clients receive the full value of their Social Security benefits, helping them achieve long-term financial stability.
Global View Capital Management (GVCM) is an affiliate of Global View Capital Advisors (GVCA). GVCM is a SEC Registered Investment Advisory firm headquartered at N14W23833 Stone Ridge Drive, Suite 350, Waukesha, WI 53188-1126. 262.650.1030. Ryan Peca is an Investment Adviser Representative (“Adviser”) with GVCM. Additional information can be found at www.adviserinfo.sec.gov Global View Capital Insurance Services (GVCI) is an affiliate of Global View Capital Advisors (GVCA). GVCI services offered through Experior Financial Group, ASH Brokerage, and/or PKS Financial. GVCI is headquartered at N14W23833 Stone Ridge Drive, Suite 350, Waukesha, WI 53188-1126. 262-650-1030. Ryan Peca is an Insurance Agent of GVCI.
These views do not necessarily represent the views of GVCM or any of its affiliates. Investment involves risk.