When working with clients on financial planning, you can expect them to ask this question – Can we count on Social Security? Although your own personal views will influence your answer, in general it is accepted practice to reassure worried clients that they will probably receive Social Security retirement benefits. Since we as financial planners and advisors can effectively “guarantee” nothing, our estimation of Social Security’s strength is at best an educated guess.
However our knowledge and training tells us that Social Security will probably not become insolvent because of its inter-generational nature in which each generation pays for the previous generation through payroll taxes. As an established, entrenched, 80-year-old system that the majority of older Americans rely on, it would be hard for politicians to vote for its demise and be re-elected.
So how should client fears affect retirement planning? How should the plan you present address Social Security benefits? You can go three ways:
1) Assume 100% of expected benefits will be paid for the client’s lifetime.
2) Assume that Social Security will default and no benefits will be paid.
3) Assume most of the promised benefits will be paid.
Option 3 is the most reasonable and the safest choice, which is the aim of most financial planners. In making the plan, you include Social Security payments, but you guide the client toward saving and investment decisions that leave them with funds in addition to those Social Security may provide.
In 1897, the famous writer Mark Twain was reported to be ill, broke, feeble-minded, and dying. In response to this rumor, the eternally clever Twain told a New York Herald reporter than “The report of my death was an exaggeration.” Twai