Many clients count on Social Security benefits as a part of their financial plan. We know plans are no more than an educated guess based on present circumstances and assumptions. The future holds change but what should we factor into our planning and how might we apply it? For clients in their sixties incorporating Social Security benefits in a plan may seem to be fairly straightforward based on current assumptions and the range of combinations of retirement ages and benefit start dates. However, for younger clients, in their thirties and forties and even early fifties, the pressures for change in the program mean high uncertainty as to timing and amount of benefits that will be available in twenty or thirty years.
So what are advisers and planners doing? Some advisers choose to not include any Social Security benefits in their plans or show clients scenarios with and without such benefits. Others plan on clients receiving half the current estimated benefit so as to reduce the impact of the benefits on plan results. A couple of interesting questions arise from these approaches: Do you believe it is wrong to show a younger client a plan incorporating their benefit calculated using current SSA assumptions? How do you counsel your clients on this particular area of their plans?
If you or a client feel that the uncertainty about these benefits is overblown or not going to have a real impact on them, think about all the related assumptions used in planning, including inflation, income tax rates and brackets and actual retirement ages and benefit start years. How good is our guess?