If you think that Social Security planning is a simple process consider this situation.

The clients are a couple.  The husband is 67 and already collecting retirement benefits.  The wife is 62.  He has a much higher earnings history and therefore much higher benefits.  We advised him to consider “suspending his benefit.”  Why?  Because suspending would allow him to accrue delayed retirement credits of approximately 8% a year if he waited until age 70 to restart benefits.   His monthly benefit would be about 24% higher every single month, for life, starting at age 70. 

The icing on the cake is that, if he predeceases his wife, which is likely, her survivor benefit will be 100% of his last benefit.  This assumes that she files for a survivor benefit after she herself has reached full retirement age.  In this case her survivor benefit would also be 24% higher, every month, for the remainder of her life.  We calculated the net benefit of this strategy could be as much as an extra $200,000 in total family lifetime benefits (in future dollars) if she lived till the age of 95. This is even accounting for the three years of lost benefits.  So far, so good.

However, when our clients went to the local Social Security office they encountered a problem.  The local representative was unsure about this strategy and needed to go “talk to their supervisor.”  Three times they ‘talked’!  After the third conference with the supervisor the SS worker returned to pronounce that the surviving wife in this couple would not be eligible for the delayed retirement credits in her husband’s benefits when she switched to survivor benefits, essentially invalidating a large benefit of our recommendation.    Understandably, the couple was confused and frustrated.  They were not confident in the information the worker had given them and were not sure whom to believe or how to proceed.

Follow-up discussions with two different Social Security Administration representatives and research in the Social Security Program Operation Manual System confirmed our strategy but it would take a lot of extra hand-holding to get these clients engaged and confident in their retirement plan.

Elaine Floyd, a prominent Social Security expert, reports numerous similar examples where planners have recommended well-researched, but somewhat complex strategies only to have clients similarly encounter resistance or misunderstandings at their local Social Security Office.

Sometimes the strategies were not even really that complex such as a client being told that they cannot withdraw  their benefit application only nine months after beginning benefits (Actually, they  have 12 months).   Another client being told at age 67 that, if he filed and suspended, he could not accrue delayed retirement credits (The regulations clearly state that he can.)

These stories are emblematic of both the promise and the peril of Social Security planning work.  There are real benefits, sometimes quite significant, that planners can provide by analyzing difference strategies and helping clients pick the one with the greatest long-term benefit. However, misunderstandings may be inevitable for a number of obvious reasons.

First, the program.   Social Security has some byzantine features (not unlike the tax code) with which can confuse even Social Security workers.  Administration of the program also contributes to the confusion.   The local representatives are genuinely mandated to help people sign up for benefits but they are not necessarily trained in, nor are they able to evaluate, complicated strategies and long-term projections beyond break-even analyses. This is the extra value provided by financial planners who help clients with Social Security planning.

Lastly, the clients themselves are already lost in a maze of jargon and can easily misunderstand either what you told them or what the Social Security workers tell them.  It’s a recipe for confusion.

If financial planners want to offer Social Security analysis as part of financial planning, you should consider the following:

• Be realistic upfront.  Recognize that these types of difficulties will arise and be willing to help your clients reach a point of clarity and confidence in these strategies.   It may not be as easy as simply running a scenario with an online tool and expecting you are done with Social Security planning.

• Decide how far you are willing to go to solidify these issues. You may need to dig into Social Security regulations, talk to a program representative yourself or even accompany a client to a meeting at the local Social Security office.  Some planners have sent clients to the Social Security office with citations in hand from the program’s own regulations.

• Lastly, make sure you are getting adequately compensated for the potential complexity of these types of engagement. You can really ‘earn your keep’ when you advise clients on Social Security.

Paul Norr is a financial planner in Thousand Oaks, Calif., and writes about planning and retirement. His website is www.paulnorr.com.

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