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The Next Frontier in Social Security Planning Software

Financial advisors have long understood the importance of Social Security in their clients’ retirement plans. Now, a growing number are using sophisticated strategies to optimize those benefits and turning to software for help.

The trend is evident in a substantial jump in the percentage market penetration of Social Security optimization software, which reached 45% of advisors last year, up from 17% in 2020, according to T3/Inside Surveying Information Advisory Software, Some of that growth reflects Social Security features bundled into mainstream financial planning software, but the use of standalone solutions is also increasing.

a separate report on technology Used by independent consultants, Published by Kitces.com, An increasing use of specialized software has been detected that provides more flexible scenario analysis and which can lead to more complex planning for optimizing benefits.

“Awareness of the need for a Social Security plan has increased significantly over the past few years,” said Joel Bruckenstein, a CFP and publisher of T3TechnologyHub. “There has been a lot of media coverage about this, and consultants are seeing that their existing clients and potential clients are interested.”

Most planners are familiar with the basics of a Social Security claim. It is possible for your clients to file for retirement benefits as early as age 62, but their annual benefits will be higher for each year they delay until age 70. Many people have a tendency to file too early. Social Security data shows that most people claim to reach full retirement age (currently a little over 66), when they can receive 100% of their earned benefits. The more affluent who hire planners enjoy a higher than average longevity, which strengthens the case for late claims; And they are more likely to have enough savings to be able to cover their living expenses while they wait for benefits to begin.

Software can help with those calculations and the more complex features of Social Security. There are important spousal benefit rules that can substantially increase a household’s lifetime benefits. Special rules apply to divorced people and survivors. And then there are workers who are affected by the windfall elimination provision. It’s a little-understood Social Security rule that, along with its cousin, the government pension offset, could mean much sharper benefit cuts for workers participating in public sector pension plans.

For retirees with significant savings, it makes sense to develop a tax-efficient strategy to time their benefits claim with withdrawals from the portfolio.

The T3 survey of more than 5,200 financial advisors found that many are relying on their existing software for Social Security analysis. Twenty percent of respondents mentioned the built in social security module Money Guide Pro (19%). But the second most reported software was ssanalyzer (10%), a specialized standalone program created by Social Security Solutions. That company, founded by tax and retirement income specialist William Reichenstein and financial services veteran William Mayer emerged as a leader in Social Security software for consumers, with max out my social securityCreated by Boston University economics professor Lawrence Kotlikoff.

The Kitsch survey, which only questioned independent advisors, found that 24% of advisors use financial planning software programs to analyze Social Security, with SSNalizer in second place with 23% of the market.

But the report also points to the potential for greater growth in specialized software and the disruption of traditional products.

Special Social Security solutions stand out in their ability to tackle more complex claims questions, says lead researcher Derek Tharp Kitces.com, and a CFP itself. “I think these programs are really beneficial for dealing with non-ordinary matters.” This is what happens when I work with clients who have government pensions, or survivor benefits, a spouse benefit. Or maybe for dealing with disability, specialized software is really helpful”

There is a new Frontier software that can recommend optimal coordination of Social Security claims and withdrawals from portfolios. Reichenstein and Meyer are thought leaders in this field, writing many influential research papers and books on the subject. His work explores the potential benefits of pursuing a traditional drawdown strategy: namely, preserving the tax-saving benefits of tax-sheltered investments for as long as possible.

Instead, his research points to the benefits of tapping tax-deferred accounts in the early years of retirement to reduce the overall lifetime tax burden. The idea is to use the dollars in 401(k) or IRA accounts to meet living expenses, or to convert a portion of these assets into Roth IRA accounts, in the years prior to claiming Social Security when marginal taxes. The rate is expected to be thereafter. profit start.

This approach takes advantage of Social Security’s valuable delayed claim credits, while reducing taxes on ordinary income. It can also help avoid or reduce taxes on Social Security benefits and Medicare income-related monthly adjustment amounts imposed on high-income retirees, and the net investment income surcharge.

Reichenstein and Meyer offer this type of analysis to consumers with software called income strategyAnd with a professional version called . is called income solver, Both of these programs combine a company’s Social Security optimization functionality with income and tax analysis.

David Stuhling uses eMoney, a CFP with Convergent Wealth Partners based in Bend, Oregon. Suitable for macro planning and for accumulation-oriented customers. But he is also getting good results from Income Solver For some clients facing typical retirement income distribution decisions involving both Social Security and portfolio declines. “Some customers are so affluent that it doesn’t matter, but for middle-class and upper-middle-income families, it’s very important,” he says.

It takes longer to work with both devices, he says. “But I find it valuable to have both. Sometimes that cross-checking will turn up an assumption or data input that was wrong.”

In fact, Stuhling is surprised that more consultants are not focusing on coordinating strategies focused on tax efficiency.

“We have less impact on investments each year, but one area we can turn to as advisors, and exercise controls, is tax liability,” he says. “It amazes me how little interest our industry has in this. We as an industry are property huggers and pretend we have all this influence and control over investment and rate of return. But really, that’s what we should focus on.”

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