Introduction: The Growing Concern Around Social Security
As a financial advisor, you’ve likely heard the looming concerns about Social Security stability from your clients. With headlines warning of a potential shortfall in the Social Security Trust Fund by the mid-2030s, many individuals fear their retirement benefits could be reduced—or disappear altogether.
While Social Security won’t simply vanish, benefit cuts are a real possibility. This makes it essential for financial advisors to help clients prepare for a future where Social Security may not cover as much of their retirement income.
In this article, we’ll explore:
The current status of Social Security
What could happen if the trust fund is depleted
Strategies financial advisors can use to protect their clients’ retirement plans
- The Reality: Is Social Security Really Running Out?
Contrary to popular belief, Social Security isn’t going bankrupt. However, it is facing funding challenges. According to the 2024 Social Security Trustees Report, the trust fund that supports retirement and survivor benefits may be depleted by 2034.
If no legislative action is taken, the program would only be able to pay about 77% of scheduled benefits using ongoing payroll taxes. This potential reduction could significantly impact retirees who rely heavily on Social Security as part of their income stream.
Key takeaway for financial advisors:
Clients need to understand that Social Security will still exist, but they should be prepared for potential benefit reductions.
- The Impact on Client Retirement Plans
For many retirees, Social Security benefits represent 30-40% of their total income. Even a modest reduction could create a substantial financial gap.
Potential Consequences for Clients:
- Delayed retirement: Clients may need to work longer to compensate for smaller benefits.
- Reduced lifestyle quality: Lower benefits could mean tighter budgets in retirement.
- Increased reliance on personal savings: Clients may need to withdraw more from retirement accounts, increasing the risk of outliving their savings.
Financial Advisor Insight:
When building a comprehensive retirement plan, include scenario modeling that accounts for possible Social Security reductions. This ensures clients are better prepared for future uncertainties.
- Strategies Financial Advisors Should Recommend
To safeguard your clients’ financial future, consider these proactive strategies:
- Optimize Social Security Claiming Strategies
Help clients maximize their lifetime benefits by strategically timing their Social Security claims.
- Delay claiming benefits: For clients who can afford it, waiting until age 70 increases their monthly payout by approximately 8% per year beyond full retirement age.
- Spousal benefits: Educate clients on strategies to coordinate spousal benefits to maximize household income.
Example Tip: If one spouse has a significantly higher benefit, the lower-earning spouse can claim spousal benefits while the higher earner delays until 70. This boosts the overall payout.
- Diversify Income Streams
Encourage clients to diversify their retirement income sources to reduce reliance on Social Security.
- Annuities: Use annuities to create a guaranteed income stream, providing stability even if Social Security benefits decrease.
- Tax-efficient withdrawals: Help clients optimize tax-efficient withdrawals from traditional and Roth IRAs to preserve more retirement income.
- Part-time work: For younger retirees, part-time work can supplement income and reduce early withdrawals.
- Incorporate Inflation-Protected Investments
Inflation can erode Social Security’s purchasing power, even with cost-of-living adjustments (COLAs).
- Treasury Inflation-Protected Securities (TIPS): Include TIPS in client portfolios to hedge against inflation.
- Dividend-paying stocks: These can provide growing income over time, offsetting reduced Social Security payouts.
- Stress Test Client Retirement Plans
Use financial planning software to stress test client retirement scenarios. Model different outcomes, including:
- Reduced Social Security benefits (e.g., 75-80% of the full amount)
- Longer life expectancy
- Market downturns
This allows clients to visualize potential shortfalls and take action early.
- Communicating the Value of Financial Planning
Clients may feel anxious when hearing about Social Security instability. As their financial advisor, it’s crucial to:
- Be transparent: Share clear, fact-based information on Social Security’s future.
- Focus on solutions: Emphasize actionable strategies to mitigate risks.
- Build trust: Regularly review and adjust retirement plans to keep clients on track.
Key Takeaway: Proactive Planning is Essential
While Social Security won’t disappear, potential benefit reductions could impact your clients’ retirement income. As a financial advisor, you play a vital role in helping clients prepare for this reality through diversified income strategies, optimized claiming decisions, and stress-tested plans.
By guiding clients with confidence and expertise, you’ll ensure they remain financially secure—regardless of Social Security’s future.
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.