Chances are you didn’t mail out any greeting cards, purchase any presents or blow out any candles this weekend, but Sunday marked the anniversary of President Franklin D. Roosevelt’s signing of the Social Security Act into law 81 years ago. As I reflect on this occasion, it’s striking to consider the impact the program has had on retirement security and how it continues to impact Americans today. But as America has transformed over the past 81 years, so too must Americans’ views of its role in a retirement plan. Advisors can have a large part in helping their clients with this shift in thinking.    

While the Social Security program struggles with long-term financial challenges, it has been largely successful at reducing poverty rates among the elderly. In fact, the year before the first Social Security checks were delivered, nearly 80 percent of the elderly had income below the federal poverty line. In 2013, the Census Bureau reported that 9.5 percent of older adults were below the poverty level.

That being said, the program was never intended to be the sole pillar of a retirement plan, but rather a means to lessen the despair of a struggling nation. Yet today, many Americans are counting on the program to be the only or predominant means of funding their retirement years. In fact, IRI’s 2016 study on Baby Boomers found that nearly six in 10 Boomers expect Social Security to be a major source of income in retirement, up from 43 percent in 2014.

Despite this over-reliance on the program, far too many Americans fail to maximize their Social Security benefits. A recent study by the Transamerica Center for Retirement Studies found, “Among those currently receiving income from Social Security, the median age they started collecting benefits was 62, despite major reductions to their monthly benefits. Only one percent waited until age 70, the age at which one can receive maximum monthly benefits.”

Even worse, there have been no cost of living adjustments (COLAs) for three of the last seven years, and only once over that time frame has the COLA been above 3 percent. This is significant because Medicare Part B premiums typically are deducted from Social Security benefits, and these premiums are growing at a much faster rate.

It’s true that the majority of Medicare beneficiaries are protected by the hold-harmless provision, which prevents a beneficiary's Social Security check from declining. But it’s also true that any offset of the COLA reduces the overall purchasing power of the Social Security benefit, as the increase is intended to help benefits keep pace with inflation. Furthermore, the provision does not apply to higher-income individuals and new enrollees, who can expect premiums to consume a larger share of their Social Security checks.

All this underscores the importance of developing a holistic retirement plan – one that includes Social Security, but does not rely solely on it. Here are some considerations for clients that advisors can use to help navigate this conversation.

  1. At what age do you plan to collect Social Security? The decision can be complex, as noted in a recent whitepaper by Prudential, and can greatly impact the amount of benefits you will receive.

  3. What other sources of lifetime income will you use to cover expenses in retirement? Annual expenditures for the typical 65-year-old retiree today are in the neighborhood of $50,000, and Social Security generates only $16,000 in retirement income a year on average.

  5. What plans to you have to manage the cost of health care in retirement or the need for long-term care? Annual out of pocket medical expenses for a retiree can exceed $5,000, and premiums for Medicare Part B are already eroding the purchasing power of Social Security.

  7. What protections do you have in place to offset the impact of inflation? An inflation rate as low as 2 percent can reduce the purchasing power of $1,000 by more than 33 percent after 20 years.