Over half of pre-retiree investors are worried about the long-term viability of Social Security, with more than one in four fearing the benefit will run out of funds in their lifetime, according to Nationwide’s eighth annual Advisor Authority survey.
In addition, 26% of those surveyed believe that Social Security will run out of funds after they have entered retirement.
These fears are not unwarranted, the survey noted. According to the 2023 Old Age, Survivors, and Disability Insurance Program’s Trustees report, 23% of scheduled benefit payments for recipients could be depleted as soon as 2033.
Despite the concerns about Social Security’s stability, most pre-retirees who say they have strategies to protect from outliving their savings are primarily relying on it (52%).
Others have turned to additional options, with 46% of those who have a strategy in place incorporating annuities into their retirement plans to guarantee income and prevent them from outliving their savings.
“I’m hopeful Congress will develop a plan to shore up the long-term viability of Social Security, but for now there remains some uncertainty about what the program will look like years down the road,” said Eric Henderson, president of Nationwide Annuity.
“The best thing those nearing retirement can do is to work with an advisor to choose the right time to claim benefits,” he said, adding, “This is a decision with huge implications for income over the course of retirement – which for many people could be 25-30 years or longer.” It’s also worth having a conversation with an advisor about how you may be able to leverage the money you have saved, including your 401(k) plan, to create a predictable stream of income.”
Easing clients’ Social Security viability concerns
To help assuage concerns, Ashley Folkes, with Inspired Wealth Solutions, said that she tells her clients that she thinks they will have Social Security, but it may look different. “I think if Social Security went away completely, we would be in some sort of Armageddon, and the government will not let that happen, “she said.
This leads to the conversation that it is more on their shoulders to prepare for retirement. “When we build out their financial plans, we look at worst-case scenarios to stress test the plan for success and failure,” she said, in describing how she works with clients. “If we come up with a shortfall in the plan, we must adjust the retirement age, consider part-time work, live off less, and save more. When clients can control some of these things, I think it lessens the fear of Social Security not being there,” she said.
The need for a diversified income plan
Brenna Baucum, financial planner with Collective Wealth Planning, said that to help her client families traverse their nervousness around the solvency of Social Security, she starts by ensuring a diversified retirement income plan that doesn’t rely on any single income stream.
“Just as Social Security is uncertain, so are portfolio returns and pension income,” added Baucum.“If we can spread the income need across a few sources, like a well-balanced investment portfolio, rental income, part-time work, or in some cases, an annuity, our worries about any single one of them tend to ebb a bit.”
The best way to see how all of these moving parts work together is through comprehensive retirement planning, she added. This includes taking stock of those resources and seeing how they align with a client’s day-to-day cash flow, big-picture goals, and long-term healthcare needs. “Knowing that Social Security only makes up X amount of your budget can help bring some comfort,” she said.
For clients who are extremely concerned that Social Security won’t be around in its current form, the firm either reduces the assumed benefit amount or disregards Social Security as an income stream in its planning software. This can help them understand whether they need to establish alternate income sources while they still have a few working years left.
“My work with clients focuses on building financial and emotional resilience,” Baucum added. “If we’re successful, we can ensure they spend retirement thinking about their next family vacation instead of Social Security.”
Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at amseka@INNfeedback.com.
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