A So­cial Se­cu­rity Re­al­ity Check

Clients’ SSA state­ments have in­valu­able in­for­ma­tion and are a great launch pad for dis­cussing re­tire­ment plan­ning.

Financial Planning - - CONTENT - By Paul Norr

Clients’ SSA state­ments have in­valu­able in­for­ma­tion.

TO NUDGE CLIENTS INTO RE­TIRE­MENT PLAN­NING, there’s no bet­ter place to start than their So­cial Se­cu­rity state­ments. While it may be con­fus­ing at first glance, a state­ment is full of valu­able in­for­ma­tion and pro­vides a re­al­ity check on the ben­e­fits that clients an­tic­i­pate re­ceiv­ing. Equally im­por­tant, it gives you a launch pad for a broader dis­cus­sion of re­tire­ment in­come plan­ning.

While the So­cial Se­cu­rity Ad­min­is­tra­tion up­dates state­ments an­nu­ally, your clients have good rea­son to be con­fused about whether they have their state­ment or how to get it. That’s be­cause the SSA has changed its distri­bu­tion poli­cies sev­eral times over the past few years.

The SSA started mail­ing an­nual state­ments to all fu­ture ben­e­fi­cia­ries in 1999, but sus­pended those mail­ings in 2011 be­cause of bud­getary pres­sure. In May 2012, the mail­ings were restarted, but only for peo­ple over 60. Later than year, they were halted again.

Now, the state­ments are mailed out only to peo­ple 60 and older, pro­vided they have not yet filed for ben­e­fits and have not es­tab­lished an on­line ac­count.

Clients who aren’t re­ceiv­ing pa­per state­ments or have lost them can ac­cess their lat­est one on­line af­ter a brief reg­is­tra­tion process. Once they regis­ter with the SSA for on­line ac­cess, how­ever, they will no longer re­ceive mailed copies.


Once a client has the state­ment, the two of you can go over the in­for­ma­tion it con­tains.

Page 2 of­fers the ab­so­lute bot­tom line for clients: es­ti­mates of their ac­tual fu­ture ben­e­fits at dif­fer­ent ages.

The first line, the full re­tire­ment age, is the linch­pin num­ber. This is the ba­sic ben­e­fit, which kicks in at age 66 for the old­est baby boomers and will rise to 67 for the youngest. The next two num­bers (age 70 and age 62) are cal­cu­lated rel­a­tive to the FRA base num­ber. If your client is al­ready 62 or older, the state­ment will list a “cur­rent age” es­ti­mate.

These val­ues are only es­ti­mates, how­ever. Here are three im­por­tant fac­tors that can also have an im­pact on the level of clients’ fu­ture ben­e­fits::

1. Earn­ings af­ter age 62: If you have a 66-year-old client who is still work­ing, her earn­ings af­ter 62 are not in­cluded in these es­ti­mates. When she fi­nally does ap­ply for ben­e­fits, a re­cal­cu­la­tion is made ac­count­ing for all years of work.

2. Cost-of-liv­ing ad­just­ments: The state­ment’s es­ti­mates do not re­flect fu­ture cost of liv­ing ad­just­ments, which can sig­nif­i­cantly raise es­ti­mates. COLAS have av­er­aged 1.7% over the last 10 years and 3.5% since 1975.

3. Pub­lic-sec­tor em­ploy­ment: Clients who have worked for fed­eral, state or lo­cal gov­ern­ments could be in for a shock. Their ben­e­fits could be re­duced by hun­dreds of dol­lars a month for any pub­lic sec­tor earn­ings for which they did not pay So­cial Se­cu­rity pay­roll tax.

The bot­tom of Page 2 out­lines two reg­u­la­tions that af­fect these work­ers: the Wind­fall Elim­i­na­tion Pro­vi­sion and the Gov­ern­ment Pen­sion Off­set. The WEP could re­duce a monthly ben­e­fit by up to $443. The GPO de­fines po­ten­tial re­duc­tions to spousal ben­e­fits for a pub­lic sec­tor worker.

Im­por­tantly, these po­ten­tial re­duc­tions are not in­cluded

in the es­ti­mated ben­e­fits listed on Page 2. Ad­vis­ers can pro­vide crit­i­cal as­sis­tance to clients by help­ing them un­der­stand and pre­pare for the po­ten­tial ef­fects of these features. .

Es­ti­mates of po­ten­tial dis­abil­ity ben­e­fits, child ben­e­fits and sur­vivor ben­e­fits are also listed on Page 2.

The state­ment does not, how­ever, pro­vide any in­for­ma­tion about pos­si­ble spousal ben­e­fits, sur­vivor ben­e­fits or di­vorced-spouse ben­e­fits. Es­ti­mates for these ben­e­fits are avail­able only af­ter an in­di­vid­ual files for ben­e­fits and the SSA cal­cu­lates the ap­pli­ca­ble amounts.


You can also pro­vide as­sis­tance to your client by tak­ing a close look at two im­por­tant in­puts to those ben­e­fit es­ti­mates: to­tal earn­ings and es­ti­mated fu­ture earn­ings.

The SSA cal­cu­lates re­tire­ment ben­e­fits based upon the high­est 35 years of earn­ings for which a worker paid So­cial Se­cu­rity pay­roll taxes. Page 3 con­tains the ex­act yearly earn­ings in the SSA records that will go into one’s es­ti­mated ben­e­fit. This list should in­clude ev­ery work­ing year in which your client paid pay­roll taxes.

If any yearly earn­ings are wrong or if years are miss­ing, ben­e­fits could be mis­cal­cu­lated. Your clients should re­view these an­nual fig­ures to see if they ap­pear cor­rect. If clients have doc­u­men­ta­tion of mean­ing­ful mis­takes, they should im­me­di­ately no­tify the SSA, us­ing in­struc­tions on Page 3.

Page 2 also lists the es­ti­mated fu­ture yearly earn­ings that the SSA uses for its cal­cu­la­tions. The more years that your client has be­fore re­tire­ment, the greater im­pact this num­ber will have in the es­ti­mates. Clients who are more than five years away from fil­ing should re­view this num­ber. Sig­nif­i­cant dis­crep­an­cies could throw off es­ti­mates. The lower half of Page 2 pro­vides more de­tails on how ben­e­fits are cal­cu­lated.

Fi­nally, clients who grouse and com­plain that they’ll never get their money back will be in­ter­ested in the es­ti­mate on Page 3 of to­tal taxes paid. This num­ber shows how much money a worker ac­tu­ally put into the sys­tem. With some sim­ple cal­cu­la­tions, ad­vi­sors should be able to demon­strate to most clients that life­time ben­e­fit pro­jec­tions will hand­ily ex­ceed these con­tri­bu­tions. That ef­fort might ease their mind on this score.

The closer a client gets to fil­ing for ben­e­fits, the more ac­cu­rate the es­ti­mates be­come. Be­cause of that, the state­ment is a great way to help clients an­nu­ally course-cor­rect their re­tire­ment in­come plan — with a clearer un­der­stand­ing of what those es­ti­mates re­ally mean.


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