By Lauren Barack

Few financial planners hope to have clients lean on Social Security benefits during their retirement years. But the last decade has changed how many advisors and clients view our nation’s pension fund. Today, depending on the age of the client, adding Social Security benefits into the retirement income plan may be a prudent supplemental source, if planners understand how to maximize the payment.

Clearly, clients don’t want to rely entirely on Social Security for their income needs later in life. Nor will they be able to according to the Center for Retirement Research at Boston College, which estimates that by 2030 Social Security will only replace about 30% of a retiree’s earnings. What’s more troubling is that this percentage is based on an employee who earns an average of just $33,250 a year. Yet with the average monthly benefit coming in at $1,076 (as of February 2011), according to the Social Security Administration, the income stream is certainly worth considering.

“While the way retirees can draw from the fund may change as lawmakers consider various options, most experts agree that Social Security will exist in some measure, certainly for those looking to retire within the next decade.”

Of course Social Security’s own solvency is a popular topic on Capitol Hill, as the program is expected to pay only 20% to 25% of its current benefits by 2037, as noted in the 2010 Social Security report. But while the way retirees can draw from the fund may change as lawmakers consider various options, such as raising the retirement age and lowering payments, most experts agree that Social Security will exist in some measure, certainly for those looking to retire within the next decade.

The key for many clients is deciding when to draw benefits. Taking retirement at age 62 brings in the lowest possible monthly stipend, while waiting to file at the standard ages of 66 (for those born before 1959) to 70 can provide a dramatic increase in the size of the check. Consider, for example, that a 62 year old retiring today could receive $1,139 per month. If he or she waits until age 66 that amount increases to $1,605 per month. However, by waiting until age 70 that amount jumps to $2,234 per month.

Delaying Payments
Yet there may be times when an advisor thinks a client should draw Social Security before he or she reaches the age to receive the maximum benefit. While this is less likely for an individual client, spouses are another story. An advisor may recommend that one spouse start drawing Social Security while another waits, particularly if the “waiting” spouse is the main breadwinner and plans to retire later.

Take the example of a higher-earning spouse, “John,” filing for Social Security, but choosing a “file-and-suspend” option, holding his payments until he reaches full retirement age. His spouse, “Jane,” who may not have worked as long and isn’t eligible for as large of a benefit on her own, can start collecting half of his payment as a spousal benefit. For his part John continues to work, earning toward his higher benefit, becoming eligible for his full maximum at age 70.

In today’s working world, of course, it’s not uncommon for both spouses to have enjoyed full careers, with both Jane and John eligible for the maximum benefit. In this case the spouses can maximize their Social Security benefits by having, for example, John retire, put in for his benefits at 66 and having Jane put in for spousal benefits against John’s record. Jane continues to work until age 70 when she can draw her own maximum.

While not all clients may be in a position to time Social Security payments to their greatest advantage, planners should help investors reexamine how these benefits can be best used to meet retirement income needs.