Why Social Security Claims Come First in Retirement Planning


Social security should be viewed as a retirement asset. Given that the average monthly benefit payable in January 2022 will be close to $ 1,660 ($ 19,884 annually), a retiree living another 25 years will receive more than $ 497,000. Home equity is another hidden asset that can be tapped if needed. So, for many retirees, social security is their greatest asset.

“A holistic plan, that’s all”

As Lane Martinsen wrote in his article The real meaning of holistic planning, “A holistic plan is comprehensive” and “maximizes all of a client’s assets” in this phase of life. Further, “the value of this type of plan lies in identifying strategies that improve the effectiveness of retirement over time.”

A holistic approach prepares people for retirement by examining the various elements that make up a client’s “total wealth framework”, not only investment accounts, but also mortgages, tax strategies, health care, long-term care and estate planning.

One of the elements of retirement income that affects the order of withdrawals from accounts is the minimum distributions required, RMD, from individual and employer sponsored retirement accounts, including regular IRA accounts, 401 (k) and 403 (b). The IRS has very specific rules on RMD, and retirees cannot keep retirement funds in their accounts indefinitely. These distributions can create a significant increase in income, and therefore taxes, from age 72.

Holistic retirement income planning can offer strategies to minimize taxation by coordinating the possible significant increase in social security income at age 70 and income generated by RMD. These strategies can include planning for Roth conversions early in retirement and using retirement accounts to reduce RMD amounts and cover the income gap if you claim Social Security at age 70.

Planning for retirement

In many ways, the financial planning associated with the retirement years is very different from that required as we move forward in our professional lives. After decades of hard work, saving, and investing to build up assets that can be used in retirement, the thought of using those assets is baffling to many future retirees.

Financial planning for retirement requires proper management and considerations of decumulation of the client’s total wealth framework in a holistic manner. Perhaps the three most important goals are to extend the life of portfolios, manage income taxes, and allocate funds for future unanticipated health and long-term care costs.

Showing clients how you can provide such an all-inclusive retirement financial roadmap builds their confidence in your abilities as a financial advisor.

As a financial planner working with pre-retirement clients, start by evaluating and repositioning their income-producing and growth-oriented accounts. Work towards their retirement goals by maintaining or increasing their standard of living and ensuring that their finances are secure throughout their retirement years. Your customers will thank you.

Martha Shedden is President and Co-Founder of the National Association of Registered Social Security Analysts (NARSSA), in which she leads the development of the education and training program for all Registered Social Security Analysts (RSSA). As an RSSA and CRPC, she is a leading social security expert, has authored numerous articles and white papers, and has presented the topic numerous times. She is also the host of a podcast, Social security: answers from the experts. She is passionate about educating finance professionals and retirees on the details of Social Security income planning, the foundation and the first step to creating a financially secure retirement plan. To follow Marthe and NARSSA on Linkedin.

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