Even sophisticated investors tend to be under-informed and overwhelmed by the complexity of Social Security claiming and how to choose (and time) the best strategy for their situation.
According to Mike Lynch, managing director of applied insights at Hartford Funds, the outlook for Social Security is more complicated than ever, with big questions being asked about the financial future of the program at the same time that retirees are anticipating a near-record 8.7% cost-of-living adjustment set for 2023.
With these factors in mind, Lynch says, financial advisors can expect to face a lot of tough questions about Social Security in the coming year. Advisory professionals can also expect to either gain or lose credibility in the eyes of their older clients, Lynch warns, according to their ability to deliver useful Social Security insights.
Near-Record COLA Spotlights Social Security
"As we head into 2023, there is no question that the large Social Security COLA has put a spotlight on the federal program and its importance to investors of all stripes," Lynch says. "Anecdotally, I can tell you that we far surpassed our internal webinar attendance record earlier this year when we put on an event about the Social Security COLA and about claiming strategies."
Lynch says Hartford Funds' advisor partners see improving their awareness of Social Security claiming strategies as a top strategic priority for 2023. Fortunately, he says, advisors have no shortage of resources to which to turn for insight, and if they put in the effort to keep on top of the latest developments, there's a lot of opportunity to deepen client relationships.
What Clients Need to Know
One of the most useful pieces of information to convey to clients, Lynch says, is the virtue of delaying benefits. Broadly speaking, the vast majority of today's workers who are nearing retirement could benefit from waiting beyond their full retirement age to collect Social Security.
One recent analysis from the National Bureau of Economic Research, in fact, shows more than nine in 10 should wait till age 70 for optimal claiming. According to the research, delaying could produce a 10.4% increase in the typical worker's lifetime spending capacity.
In Lynch's experience, advisors and their clients often overlook just how significant the benefit of delaying benefits can be. According to Hartford Funds data, a typical investor expecting a $1,000 monthly benefit at age 66 would receive only $750 if they claimed at age 62, while they would receive $1,320 if they waited until age 70.
