Social Security: Maximizing Your Client’s Retirement

Social Security: Maximizing Your Client’s Retirement

If you want to maximize your Social Security, you need to protect your assets.

There many reasons to consider indexed annuities as part of your clients’ portfolios. Research shows that if we can capture a modest portion of the market’s upside movement while still protecting against losses, there is a strong chance we can outperform the market over time. Not only does this bode well for the performance of the portfolio, but it is nice to do so while sleeping well at night. Warren Buffett famously said that the best way to hedge against inflation is to not lose any of your money. But where does the indexing conversation fit into Social Security planning?

When planning for retirement, it usually makes sense to defer as long as possible. Yes, there are benefits that may be available to a person early, but these typically only provide a small benefit before taking the maximum amount, which almost always comes at age 70. As people elect to wait to draw their Social Security, they typically either continue to work or live (to some extent) off of their savings and investments.

Retirement Scenario

Consider this: In traditional portfolio management during retirement years, a retiree typically lives on a fixed withdrawal percentage from their investments. In other words, if a person has a $1 million portfolio, they will pull 4% out of their portfolio every year to live on, giving them a $40,000 annual income. What happens if, during the course of a market downturn, the retiree loses a significant portion of their portfolio to market losses? Either one of two things will probably take place:

The retiree will continue with the same standard of living and will have to pull a larger percentage from their portfolio to ensure the same monthly income. This can have devastating effects on the portfolio if the losses are not recuperated in a timely fashion.

Due to a reduced amount of income from a fixed percentage rate within the portfolio, other sources of income need to be considered in order to prevent further damage to the portfolio. The most common areas to turn to are to get a job (less than ideal), deplete emergency funds (bad idea), use credit (worse idea), or take Social Security early.

Usually for a retiree not currently on Social Security, the most common choice (of the above options) is to take Social Security early. This is unfortunate because it reduces the person’s monthly income from Social Security for the rest of their life. Due to the inability to sustain their income level because of losses in their portfolio, they compound their income difficulties by shorting their guaranteed income stream for Social Security for the rest of their life.

Indexed Annuities

Enter the indexing solution! By not exposing your clients’ portfolios to losses in the market, you not only guarantee that they will continue with an uninterrupted income stream, but you also ensure that the Social Security plan you put together will be attainable. This will help you eliminate the need to tap into Social Security early due to unforeseen income reductions. This is just another reason to consider indexing as a strategy for your clients nearing, or in, retirement.

For more tools and training for advisors working with Social Security, be sure to visit our resources page.