3 Reasons Clients Should Take Social Security Early

2. Social Security Trust Fund Insolvency

Social Security is financed primarily through payroll taxes, with a small portion funded by interest earned in the Old-Age and Survivors Insurance (OASI) Trust Fund. Furthermore, the trust fund is projected to be exhausted by 2035.

In 2019, payroll taxes going toward Social Security funded approximately 89% of payments to program recipients.  With the long-term stability of this tax called into question in recent weeks, the future funding of Social Security has alarming concerns. To make things even worse, there's no current game plan for what will happen once the OASI trust fund is depleted.

In the near term, the elimination of the payroll tax could create more stability for personal finances by helping people stay afloat with day-to-day bills through the COVID-19 pandemic.

Furthermore, it is designed to help stimulate the economy by providing working Americans with additional funds to spend on consumer discretionary items. However, I believe it will be challenging to sustain the Social Security system without this tax over the long term.

Though we would never recommend a retirement plan that relies primarily on Social Security income, the truth is even those people who depend on it for a small amount of income would still be negatively affected if it were to disappear.

3. Take Advantage of Guaranteed Income While It's Available

There's no such thing as a free lunch, but taking advantage of Social Security benefits (when it makes sense) is about as close as your clients can get. Furthermore, tapping Social Security will likely prevent them from selling amid market declines. If your clients' accounts are down in a bear market, the last thing they should do is sell depressed equity positions.

There are both qualitative and quantitative aspects of retirement planning. The qualitative aspects, including mortality, health and lifestyle changes, are all unknowns. But the quantitative piece is where we can add value to a client's plan in retirement.

Social Security is normally one of the most important pieces in retirement planning, and if these benefits are in an unnerving position, it is best to start taking it early.

At the end of the day, clients need to feel comfortable with their decision about when to start taking Social Security. As an advisor, it is my job to continuously and proactively check in and provide the pros and cons of all retirement circumstances.

Tony Zabiegala, CRPC, is a founding member of Strategic Wealth Partners with 15 years of experience in financial services. As VP and COO, he provides wealth management solutions and customized retirement plans to high-net-worth families. Strategic Wealth Partners is an RIA headquartered in Independence, Ohio.