The typical American views Social Security as an entitlement – there for the taking at the first opportunity. But retirement planners know that isn't often the best move. Financial advisor Karla McAvoy, of HC Financial Advisors, discusses the best ways to educate a client on when the time is right for Social Security, no matter what their circumstances.
Q. Please tell us a little about your firm, the clients that you represent and what you specialize in with regard to retirement planning.
Karla McAvoy: Our firm is 30 years old now. We're a fee-only financial planning firm, covering both financial planning and asset management. We have eight people in the firm right now; about 210 clients; and about $260 million under management. The majority of our clients come to us a little bit before retirement or right into retirement. This change in how they are going to receive income is often a trigger for them to seek out financial advice. We do tend to get people in that 50-65 range, but really our clients run anywhere from a few in their 30s to a couple over 100 right now.
Q. Over 100?
Karla McAvoy: Yes, we have two clients that are over 100-years-old.
Q. And they're still doing retirement planning?
Karla McAvoy: Well, they don't do much financial planning, but they still need asset management.
Q. The unfortunate part of what I hear in your response is that most of your clients wait until they are nearly at retirement age before they come seek you out.
Karla McAvoy: I would say that is mostly true. Certainly we get clients at all times. It might be somebody that is going through a job change. It tends to be a major life event that triggers somebody. For example, there are a lot of widows that we work with, divorcees … Anytime that they are suddenly finding themselves in a different economic situation it can lead them to come to us. The other big one is an inheritance of some sort.
Q. Are there any trends or events in 2014 that will have an impact on how retirement planners should advise clients on Social Security?
Karla McAvoy: I don't know that there is anything specific in 2014 that could cause me to change my advice to planners. I think that my advice tends to be fairly consistent, which is that people are living so much longer … and we just talked about the fact that we have a couple of clients that are over 100 years old … and they tend to be very healthy into their 70s and 80s. One of the strongest pieces of advice that a retirement planner can give to somebody that is near retirement is to work a little bit longer if they like their job and they can continue to do it. Because by working they can increase the amount of Social Security benefits that they get. They'll get a larger benefit than they would normally be entitled to if they can wait all the way until age 72.
Q. When a typical client or would-be client comes to see a retirement planner, when do they usually intend to file for Social Security and what should a planner advise them based on what you just said?
Karla McAvoy: At first blush, I think that many people want to take Social Security the minute that they'll eligible for it, which is usually at 62. Even if they're still working — especially if they're still working — I encourage planners to tell their client to wait. I sense that many people worry about the government; the funding; is Social Security going to be there. Many clients come in thinking, 'oh, I should take it right away to make sure I get some.' But planners should tell their clients — especially from the Baby Boomer generation – that it is not going to be fundamentally different than it is right now. There is basically just a math problem going on – we've got more people collecting, and collecting more than is going into the system. There are small changes that we can make in the way that Social Security is collected that can make it viable. Hopefully after a retirement planner educates them on the benefits of waiting, almost all of them are going to do that.
Q. How about younger clients, the clients that are in their 30s. Do they assume that Social Security will be there for them as well?
Karla McAvoy: No, I would say that they're definitely more cynical about whether Social Security will be there, at least the ones that we've worked with. We have a fairly high minimum [in personal assets], which is $1 million. So these tend to be pretty well established professionals, or younger couples that have received money, perhaps from an inheritance. But they tend to feel they may not have Social Security available. So they have a much stronger desire to save what they need for retirement. I can't say that's true across the entire generation, but I definitely see that among our clients.
Q. Obviously not everyone in their 30s thinks, 'oh no, there's not going to be anything left for me.' And there are certainly people in their 40s and 50s who may have a very cynical attitude about how much they're going to be able to collect. How should a planner's advice differ for somebody who doesn't expect that they're going to be able to tap into Social Security?
Karla McAvoy: Typically, we do comprehensive financial planning, and we'll run models and we'll show — based on this rate of savings and expenses and so on — this is how we would expect your retirement to go. For those younger people especially who ask us to eliminate the Social Security benefit, we can do that and just show them that if you had a Social Security benefit this is what your retirement could look like. And if you do not, this is what it could look like. I would say most of them are pretty strongly in favor of saving anyway, so it just gives them a level of comfort that if can see if Social Security were there it would just give them a little boost in income in retirement.
