Page 24 - Investment Advisor February/March 2023

Cover Story

Social Security claiming
remains the biggest

decision for retirees.

The decision a middle-class individual or couple makes about
claiming Social Security is still “far and away the most impact-
ful single decision they face” in the entire retirement planning
effort, according to Marcia Mantell, founder and president of
Mantell Retirement Consulting Inc.
The same is true with respect to clients who have ample
resources, Mantell says, adding that all but the wealthiest
clients will see a meaningful effect on their lifetime spending
power depending on when and how they choose to claim
Social Security.
With a whopping 8.7% cost-of-living increase implemented
for 2023, she notes, the stakes for optimized Social Security
decisions are even higher, and the demand for income plan-
ning that accounts for Social Security is rapidly growing.
Among the most helpful things an advisor professional can
do with respect to Social Security claiming, Mantell says, is
ensure their clients don’t make mistakes simply because they
are uninformed. For example, some clients may be seriously
considering claiming their benefit early in 2023 all because
they want in on the high COLA. In reality, individuals do not
have to claim early to get the benefit of this or any year’s COLA. Community Survey and
“Social Security benefits are calculated to include any the 2019 Survey of Consumer
COLAs, regardless of when a client claims,” she explains. “In Finance respondents into the Fiscal Analyzer, with the goal of
fact, Social Security applies all annual COLAs by simple accu- measuring the size and distribution of forgone lifetime Social
mulation between ages 63 and 70 for those waiting to claim. Security benefits.
Adjusting for the annual COLA is already part of the formula.” As noted in the paper’s abstract, the Fiscal Analyzer is a
Thus, any given individual’s total cost-of-living adjustments lifecycle, consumption-smoothing research tool that incorpo-
will be applied to the calculated primary insurance amount at rates Social Security and all other major federal and state tax
their point of claiming. As such, Mantell says, the bottom line and benefit policies. The tool can be used to help demonstrate
for advisors is to help reduce unnecessary anxiety and keep optimal lifetime Social Security choices.
the plan intact. The NBER analysis found that virtually all American
“Make sure you are connecting the dots in Social Security’s workers ages 45 to 62 should wait beyond 65 to start collecting
benefit formula,” she explains. “There is no need for clients to Social Security, while more than nine in 10 should wait until
claim benefits now unless it’s part of their holistic retirement age 70. According to the authors, just 10.2% of Americans
income plan. Clients will not lose the new COLA, but they appear to do so, and the median loss for this age group in the
should lose some of that gnawing anxiety.” present value of household lifetime discretionary spending is
Recent academic research backs Mantell’s proposition. in excess of $180,000.
According to a 2022 paper published by the National Bureau of For one in four workers, the lifetime spending gain exceeds
Economic Research (aptly titled “How Much Lifetime Social 17%, and for one in 10, the gain exceeds 26%, NBER says.
Security Benefits Are Americans Leaving On the Table?”), Among the poorest fifth of those between the ages of 45 and
optimizing the choice of when to claim Social Security can 62, the median lifetime spending increase is 15.9%, the authors
produce a 10% increase in the average worker’s lifetime find, with one in four gaining more than 27.4%.
income. Unfortunately, few Americans appear to be making The paper shows these findings hold even when assuming
optimized claiming decisions. what the authors call an “unrealistically low maximum age of
Authors of the analysis include NBER contributors David 85.” Even in this scenario, three-quarters of workers would do
Altig, Laurence Kotlikoff and Victor Yifan Ye. The trio used best by waiting until age 70.
an analysis method that feeds data from the 2018 American Of course, as the authors point out, a small number of

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