Data & Research September 28, 2015

FPA, AARP Study Detects Social Security Knowledge Gap

Financial planners and advisers can fill it with good information on how the benefit works.
Reported by

Research released today indicates that close to 100% of Americans could lack critical information about how to get the most from their Social Security benefits. According to “Social Security Planning in 2015 & Beyond: Perspectives of Future Beneficiaries and Financial Planners,” just 9% of consumers consider themselves “very knowledgeable about how Social Security benefits are determined,” and 1% of Certified Financial Planners (CFPs) say their clients are very knowledgeable on the subject.

The survey was a joint effort of the AARP and Financial Planning Association (FPA), an organization for CFPs, as well as educators, financial services professionals and students in that field. In it, the two organizations sought to explore how the experiences and knowledge of future Social Security beneficiaries compare with the experiences and recommendations of professional financial planners related to Social Security’s role in retirement income.”

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Not surprisingly, the survey indicated that Social Security beneficiaries would gain from better education, such as the help of a CFP. Whether you are a financial planner—that term being interchangeable in the study—or an adviser specializing in retirement plans, the key takeaway is that many pre-retirees lack key information that could significantly help their retirement readiness. Even survey consumers who claimed to be “somewhat knowledgeable” on the topic comprised just 38% of the responding group. From the CFPs’ perspective, just 31% of their clients are somewhat knowledgeable about the benefit.

“For families and individuals looking to claim their Social Security benefits soon, this survey shows that far too many face a claiming knowledge gap potentially leaving thousands of dollars on the table,” says AARP President Jeannine English.

“Social Security in retirement requires more than just retiring and collecting a monthly check from the government,” agrees FPA President Ed Gjertsen II, CFP. “There are many nuances to Social Security and ways to maximize benefits.”

NEXT: The breadth of the gap

 

 

The 1,215 responding consumers—ages 45 through 64, all unretired—indeed recognized the value of exploiting Social Security: 77% called maximizing benefits “very important,” as did 85% of the 1,279 CFPs.

The reality, however, according to the survey, was that 83% of consumers overestimate or underestimate how much they would receive if they defer claiming Social Security until they reach 70—the maximum age to do so; 67% underestimate and 16% overestimate the hardship they would incur in waiting that long. “Only 57% know that even waiting past one’s full retirement age can result in further increases in benefits—leaving 42% who believe benefits will stay the same or be reduced after age 66 or 67,” the report says. Even while nearly three in 10 (28%) CFPs recommend that clients postpone drawing benefits until age 70, only 13% of consumers plan to heed the advice.

Additionally, fewer than four in 10 consumers (39%) believe Social Security will make up at least half of their income, even though AARP has reported that Americans increasingly rely on Social Security as they age—for upwards of 50% of their income by age 80.

Just over four in 10 CFPs, however, estimate that Social Security will be a major source of retirement income. Ninety-four percent of CFPs said most of their clients, likely to be affluent, will rely on Social Security to make up 50% or less of their retirement income. CFPs factor that into a comprehensive picture including income from retirement plans, a spouse, if any, and post-retirement work; along with the client’s health, life expectancy, and so on. The goal with Social Security, as with the other income sources, is to maximize the benefits, the study says.

NEXT: How financial planners bridge the gap

To minimize ignorance on the subject, many financial planners report discussing it with their clients. According to the survey:

  • Ninety-six percent of CFP respondents address Social Security with their clients as part of retirement planning; 91%, in fact, say it is very important to help clients strategize for Social Security in their retirement planning—this includes claiming strategies (96%) and income projections (97%).
  • Nearly half (46%) of CFPs recommend that their clients review their estimated Social Security retirement benefits at least once a year and almost as many (45%) say they should review their estimated benefits every two years. 
  • CFPs are also twice as confident in the Social Security system’s solvency as are consumers—14% believe their clients will receive benefits at least equal in value to those received by today’s retirees—vs.7%, respectively.
  • CFPs most often keep their knowledge current by attending professional conferences (81%), along with looking to the Social Security Administration (78%), virtual learning (58%) and media coverage (50%).

As to where most consumers get their information, professional financial advisers ranked even with current and former employers—at 16% each. More common were family members or friends, at 46%; the Social Security Administration, 45%; newspapers, 33%; financial magazines or books, 22%; and financial television shows, 17%. Other sources looked to included financial services firms, at 9%; accountants, at 7%; and attorneys at 3%.

For AARP’s contribution, GfK Roper conducted a national survey of the 1,215 adults, all eligible to receive Social Security at age 62, between June 22 and July 3. FPA completed an online survey of the 1,279 CFPs, all active FPA members, also between June 22 and July 3. The full results of both surveys may be found here. 

 

Client Service September 28, 2015

PANC 2015: Top Trends

Taking a more holistic view of benefits, coping with the “longevity disconnect” and improving pension risk management were topics for retirement industry experts at PANC 2015.
Reported by

Two longtime industry experts took a high-level view of employer-sponsored benefit programs during the first day of PANC 2015, outlining the top trends likely to impact practice management and profitability in the year ahead. 

Plan sponsors are taking a more holistic view of benefits and advisers should take note when formulating value propositions and service models, noted Scott Buffington, vice president of retirement services national sales for MassMutual Retirement Services.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

“It means a lot when you’re talking to a company prospect,” he said, adding that with health care, disability, life insurance and other types of benefits all bombarding participants with different messages, people are used to thinking about benefits in terms of distinct silos. But these messages intersect and their interplay is very important, Buffington said, and participants need help more than ever to sort everything out. 

“Helping people to see how things intersect is a big trend,” Buffington said. 

Buffington was also asked if the annual enrollment around health care is an important time for plan sponsors to bring up retirement enrollment, given the growing convergence of benefits. “Yes,” he said, “more tools are being launched and the best advisers can lead the discussion for participants as they contemplate their pool of benefits dollars.”

An aging workforce that can’t afford to retire will have an economic impact on other benefits programs, Buffington said. “Look at the demographics of your plan and articulate to your CEO that it makes sense to calculate the benefit of other benefits programs,” he advised. “We’re seeing this across the country, how benefits intersect, and more advisers are partnering with benefits firms to have that conversation.”

NEXT: Financial wellness on the rise

Advisers want more conversation around wellness, said Michael Domingos, vice president, corporate distribution and strategy at Prudential Retirement, but the range of definitions makes it more difficult. “If there are 150 people in the room, I’d probably get 150 different answers as to what it is,” he said. 

Interest is growing in the notion, however, he said, given what employees and employers both say about wellness. Citing statistics from LIMRA, he pointed out that 79% of employees say they lose sleep over their finances and another substantial portion admit they live paycheck to paycheck.

On the employers’ perspective, Domingos said, seven out of 10 HR professionals say financial challenges impede workplace performance. “The good news is that in a similar study, 81% of employers said they want to be able to provide some form of wellness,” he said, “and 89% of employees said they feel it is appropriate to get that counsel through the workplace.”

The concept of financial wellness could be opening a new frontier for advisers, he said, with some completely changing their business model, creating wellness curricula around debt management and estate planning, for example, and marketing the service to large plan sponsors as education modules.

On the matter of how advisers can address the issue of retirement plan participants who don’t save enough even with optimal plan design features in place, Domingos cited five key behavioral challenges that each must be overcome to ensure better outcomes. These are the longevity disconnect, procrastination, optimism bias, over-reaction and impulse control, he said. 

NEXT: The challenge of living longer

“One in four people will live past 90,” Domingos said, which converges with several factors—market volatility and the shift from defined benefit (DB) to defined contribution (DC) plans, creating even stronger need to help people manage longevity.

“The concept of income as part of a retirement plan is not new,” Domingos said, since annuities have been around a long time. But since 2007 interest has been growing in an institutional approach to guaranteed income, and research shows the number of plans offering some income option is soaring. “Definitely have an eye toward this talk with your clients,” he said. “It’s gaining traction—and there’s a huge opportunity to provide it.”

Pension risk management could be an opportunity for advisers, and Domingos suggested that if advisers are not spending time on this, they might want to consider it. “Organizations can use a lot of help and you can really differentiate yourself,” he said. A growing number of plans are de-risking, he said, for several reasons. “Your client is faced with increasing PBGC premiums,” he said. “They are going up to $64 per person. That’s a real cost. Mortality tables are being updated, and the spread is 6% to 9% for increasing your liabilities. Pension buyout transfers all risk to the balance sheet of an insurer. There’s a huge move in that direction.”

According to Buffington, niche markets provide the best opportunity: “They need your help,” he said. Their lack of expertise in DC could mean a big referral opportunity, and the longevity of the relationship is a possibility. “We try to educate advisers to diversify their revenue,” he said.

«