I have been a proponent of financial education and wellness programs in the workplace for over 20 years. Over that time frame, more and more employers have recognized that financial education can be one of the most valuable employee benefits they can offer their employees. A more financially confident employee is often a more productive employee, less worried about their financial future and more focused on the task at hand - a win-win for both employees and employers alike.
Unfortunately, most workplace financial education programs do not include one of the most important financial components of one’s retirement planning - Social Security claiming strategies. With 567 different claiming strategies available to maximize ones Social Security retirement income benefits, many employees are often left bewildered or even unaware they have more than the standard claiming options they may be familiar with. (For related reading, see: 10 Commonly Asked Questions About Social Security.)
The typical employer assumes their responsibility ends once they educate employees about general retirement planning and investing principals regarding the company’s retirement plan options. In reality, employees who understand both their employer-sponsored retirement plan and their Social Security benefits can make better choices – which may include increasing their participation in company retirement plans.
A Complicated Decision
“What more do I need to know about Social Security? When I turn 62, I will apply for my benefit and that’s it.” It’s a common comment I receive from employees before attending a Social Security workshop. The truth is, Social Security claiming can be a complicated decision, requiring a working knowledge of financial planning concepts and available claiming options to determine the ideal claiming strategy. The details of when and how you claim are complicated but crucial.
Research by Financial Engines indicates 60% of Social Security claimants take benefits within the first few months of turning 62 or the date of retirement, whichever comes later. An employee claiming benefits that early will get a 25% lifetime reduction in income compared to their income if they waited until full retirement age. The cost of misunderstanding claiming options could potentially mean the loss of thousands of dollars in lifetime benefits. In some cases, that amount could be equal to their 401(k) balance before retirement.
401(k) Contributions and Enrollment
A recent article by the Society for Human Resource Management outlines some potential benefits of Social Security education when it comes to 401(k) contributions. Although education surrounding saving and investing for retirement has significantly increased, it generally lacks integration with the role of Social Security.
When employers educate their employees on how Social Security benefits work, they have the opportunity to also inform them about options for delaying benefits to get the maximum benefit for themselves and their spouse, if married. This is a major opportunity to increase 401(k) plan enrollment and contributions because when employees realize that Social Security alone may not meet their retirement needs, they pay more attention to employer-sponsored retirement options. (For more from this author, see: Often Missed Social Security Claiming Options.)
Let’s look at an example:
Joe has worked at a shipping warehouse since he graduated from high school. He’s risen to a floor manager position, but he never paid much attention to the company’s 401(k) plan because he thinks his savings and Social Security benefits will be enough for him to retire on. When Joe’s employer offers an employee workshop on Social Security benefits, he realizes that he did not fully understand how Social Security benefits were calculated and the pros and cons of claiming his benefits under various claiming scenarios. As a result, he decides to start contributing the maximum amount to his company’s 401(k) plan to make up for lost time. Without adequate education, Joe most likely would not have changed his 401(k) participation.
What Employees Want
The research by Financial Engines indicates that people faced with making retirement decisions want help and professional guidance. Of respondents to their 2014 survey of workers 55 to 70 who were yet to claim benefits:
- 67% say they would find a website with articles and information on claiming helpful.
- 69% of those who have not yet claimed said that they would be interested in a service through their employer offering education, access to an advisor and personalized online assistance.
- 71% would find guidance on how to bridge the income gap if they elected to delay claiming highly beneficial.
- 76% would find an online service that shows optimal claiming strategies based on personal information useful.
- 80% would find it very useful to speak with an advisor who could give personal claiming guidance.
The takeaway is that people want help with Social Security benefits as much as they do with private retirement planning. Employers who provide that service make it much more accessible and build trust with their employees. And when people are left on their own with questions about Social Security and retirement, it is the kind of overwhelming task that gets put off indefinitely.
Work is where many people think about, save and plan for retirement. Adding education regarding Social Security and claiming strategies can further strengthen these programs and give employees the knowledge they will need to decide how and when to receive their benefits. Employers reap the added benefit of having a workforce not preoccupied with retirement worries while on the job and can also see higher 401(k) plan participation and contribution rates while building trust with their employees. (For more from this author, see: Applying for Social Security Before Retirement Age.)
This information is not intended to be legal or tax advice. The presenter can provide information, but not advice related to social security benefits. Clients should seek guidance from the Social Security Administration regarding their particular situation. Social Security benefit payout rates can and will change at the sole discretion of the Social Security Administration. For more information, please consult a local Social Security Administration office, or visit www.ssa.gov.
Registered Representative/Securities and Investment Advisory Services offered through Signator Investors, Inc. Member FINRA, SIPC, and Registered Investment Advisor. AspenCross Wealth Management is independent of Signator. 1400 Computer Drive Westborough, MA 01581