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The Social Security Question
Advising clients on when to collect Social Security
Happy Sunday everyone, and welcome to Benzinga’s financial advisor newsletter.
This week, the Employee Benefit Research Institute released its latest Retirement Confidence Survey, the longest survey of its kind to poll public sentiment around retirement.
The survey showed that American workers tend to be overly optimistic about how long they can remain in the workforce:
28% of workers expect to retire at 65, a significant increase from 23% a year ago.
However, the survey has reported a median retirement age of 62 for several years.
75% of people expect to work in some capacity after retirement, but only 30% of retirees have actually done so.
In summary, workers often lack a clear and accurate picture of what their retirement will look like, and it’s up to financial advisors to help them with that. In today’s industry chatter, we discuss one of the most important questions surrounding retirement: when to start collecting social security.
Let’s dive in!
Lastly, if you would like to be featured in our upcoming advisor spotlight editions, click here to send us an email.
INDUSTRY CHATTER
Retirement planning is a major component of the relationship between an advisor and a client. Many conversations are had surrounding the planning, timing, saving, and investing for a client’s retirement. One of the first questions that tends to come up is when to start collecting Social Security.
An individual can apply for Social Security as early as age 62 or wait up to age 70. The former results in a reduced payment while the latter comes with a bump in payment size.
Individuals can also opt to apply for Social Security at their normal retirement age, which currently sits between 66 and 67 for most. There are several considerations to take when deciding the timeline for Social Security collections, and advisors can carefully assess their clients’ situations to determine the best route.
No Two Snowflakes Are the Same
When it comes to collecting Social Security, no two situations are the same. The right option for one individual will likely not be the same as their neighbor. Taking Social Security earlier than the full retirement age might be the best option for certain individuals.
An income gap could be a situation where an advisor would recommend applying before that full retirement age. The gap could result from losing employment or unforeseen higher monthly expenses like medical bills.
An individual might also opt for Social Security collection at 62 to help keep taxes low. If a client has a pension or other reliable retirement income, taking a lower Social Security payout could help prevent them from entering a higher tax bracket.
Advisors understand that knowledge of a client’s general health is key. A person with a shorter life expectancy might also opt for collecting Social Security before their full retirement age, to fully benefit from the payouts.
It Pays to Wait
If possible, advisors typically encourage clients to delay their application for Social Security.
The main motivation stems from the increased payout, but advisors also tout the growth of payments with inflation. Social Security payments are adjusted annually to account for cost of living changes. So if a person has a higher starting payment, those cost of living adjustments will lead to higher payouts down the road.
The decision to wait can also benefit an individual’s family. A higher payout could help a spouse or child with the survivor benefits to thrive long after the original retiree is gone.
Looking at the numbers, someone who waits until 70 to start claiming Social Security will see up to a 24% boost in their benefit size.
Timing is everything. Advisors can dive into their clients’ situations and walk them through the pros and cons of each Social Security scenario to ease the stress of planning.
MARKET RECAP
After four consecutive weeks of declines, tech stocks — as tracked by the Invesco QQQ Trust— experienced their best week in 2024.
The stocks were buoyed by reduced geopolitical tensions in the Middle East and robust corporate earnings, even as persistent inflation signaled the need for caution.
U.S. economic growth slowed in the first quarter, with key inflation metrics monitored by the Federal Reserve rising unexpectedly, delaying discussions on interest rate cuts.
Tesla Inc. had its strongest week since January 2023, despite recent earnings and revenue misses, driven by optimism over its future cheaper models and Robotaxi initiatives.
Energy stocks, this year's best performers, faltered following weaker-than-expected earnings Friday from Exxon Mobil Corp. and Chevron Corp.
Tesla Rebound Ahead?
Billionaire Ron Baron said Tesla’s stock has reached its lowest point and is set for a significant surge. Despite the stock’s 34% drop this year, Baron remains confident in its recovery, attributing the fall to temporary concerns rather than fundamental issues.
Meta’s Weaker Outlook
Facebook parent company Meta Platforms Inc. surpassed first-quarter earnings forecasts with revenue of $36.45 billion, marking a 27% increase year-over-year. Earnings per share reached $4.71, outperforming estimates. The company projects weaker-than-expected revenue and higher costs, which negatively impacted the stock.
Treasury Yields Spike
U.S. Treasury yields hit a six-month high, significantly impacting mortgage rates and raising economic concerns. The 30-year Treasury note yield rose to 4.78%, prompting mortgage rates to increase to 7.24%. Experts warn the growing federal deficit could destabilize financial markets.
AI's 1995 Moment
Wedbush Securities analyst Dan Ives hails artificial intelligence as the “Fourth Industrial Revolution” following strong earnings from Microsoft Corp. and Alphabet Inc. He compared this transformative phase to the pivotal tech moment of 1995.
Musk Critiques TikTok Ban
Elon Musk suggested that the potential U.S. ban of TikTok sets a dangerous precedent for government control over app availability in the name of national security. Such moves could contradict principles of free speech, raising broader implications for social media and internet freedom.
Dimon Sees Stagflation
Bank of America analysts suggested 2024 could be a reverse reflection of 2015, with potential Federal Reserve misjudgments on rate cuts amid inflation pressures. JPMorgan chief Jamie Dimon compared today’s scenario to the 1970s, emphasizing significant risks from fiscal deficits and inflationary policies affecting market stability.
WHAT THE PROS ARE WATCHING
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THE WEEK AHEAD
Economic Data
Monday: None
Tuesday: Employment cost index, S&P Case-Shiller home price index, Consumer confidence
Wednesday: ADP employment, FOMC interest-rate decision, Fed Chair Powell press conference
Thursday: U.S. trade deficit, U.S. productivity, Factory orders
Friday: U.S. employment report, Hourly wages year over year, Consumer credit
Earnings
Monday: Alliance Resource Partners
Tuesday: 3M Company, Eli Lilly, Advanced Micro Devices, Amazon
Wednesday: Allstate, Albemarle, Aflac
Thursday: 1-800-Flowers, Rent-A-Center
Friday: Hershey, Cboe Global Markets
Click here for the full calendar of economic data and earnings reports.
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