Social Security and the Big Financial Planning Picture

Brought to you by Corey Keltner

On January 26, 2019

The first Social Security tip I want to discuss relates to the bigger financial planning picture.

It’s easy for clients to think that Social Security is just a switch that can be flipped on when they are ready to retire, but we really need to convince them that this is something that we should be starting 5-10 years before retirement.

The thing you don’t want is a client to start taking Social Security and then say, “Now I am ready to start retirement planning.”  At this point we’ve lost the ability to optimize benefits as part of the overall financial plan.

The thing we want to do is start early, look at the client’s overall cash flow and then match up Social Security as a replacement for their basic living expenses because we want those covered no matter what.

There are a few areas where understanding basic living expenses are critical:

  1. Tax – Clients may realize that their Social Security is likely to be subject to tax if they have a pension or plan to distribute assets from a traditional IRA, but we know that up to 85% of Social Security can be subject to taxation. Figuring this into the plan early and working on ways to minimize it can be well worth the advisor’s time.
  2. Debt – Debt is a basic living expense until it is paid off. If you can get started early enough, you can help the client make a plan to pay the debt off before they retire, freeing up that cash flow. If they need to take the debt into retirement, we can make a plan to make the income available until it is paid off.
  3. Spousal Issues – We may think that both clients will receive Social Security throughout a long retirement period; however, one spouse may pass away early leaving the other with only one Social Security check. We need to make sure the client can cover the bills for the survivor if one spouse passes away prematurely.
  4. Missed Expenses – Many clients don’t pay close attention to all of the inflows and outflows in their accounts. As they switch to retirement, it’s easy to forget about some basic expenses that they must cover. This can be something like Medicare premiums or that they will need to pay property taxes and home insurance after the mortgage is paid off.

Social Security planning is always part of a larger retirement plan. If there is just one takeaway here it is to get started early while the client has plenty of options and flexibility available. It’s also important to work toward getting those basic expenses covered and Social Security can go a long way to optimizing the overall plan.

Stay tuned for more blog posts and other great Tax Savvy Content.


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