Will Social Security Provide Your Clients with Enough Retirement Income?

December 14, 2023

By Courtesy of Sammons Institutional Group’s Tyler Hann

Imagine this: Your clients have spent the last 40 years receiving a paycheck every month and, in that process, funding their Social Security. The steady income was something they depended on month after month. And most years, they could plan on receiving a bit of a cost of living adjustment in the next year. It felt safe and consistent.

But eventually, they’ll transition into a new phase of life … retirement. And that steady income stream they’ve depended on for decades will stop. Now what?

Understandably, this change in income can create stress for your clients. Pre-retirees may ask you—as their financial professional—if Social Security will provide enough retirement income. The short answer is likely no. But let’s take a closer look.

Understanding Social Security

For many retirees, Social Security may be their largest financial asset in retirement and, likewise, a major part of their financial strategy. They’re counting on it as it offers a consistent income stream with a cost of living adjustment built in. However, it is not designed to be a pension plan or to replace 100% of income. On average, Social Security covers about 40% of annual pre-retirement earnings.1

Social Security has been perceived to be a social safety net, ensuring those over 62 wouldn’t become financially destitute. The system is built to ensure people do not fall below the poverty line. It’s meant to provide guaranteed lifetime income and isn’t supposed to be a retiree’s sole income source in retirement. So what additional options do they have?  

Additional income streams

Additional income streams can help your clients feel more confident in their financial future. Here are several potential options to consider:

  • Clip coupons from their bond assets
  • Draw income from dividends
  • Take a specific percentage from their retirement portfolio, such as the popular 4% rule
  • Purchase an annuity with an income feature

These different strategies can produce the desired long-term financial result. However, stress, anxiety, and the natural inclination to sell out on everything during times of economic turmoil can derail their income plan.

How an annuity can help fill income gaps

There are two ways to create a continuous income stream from an annuity. First, clients can annuitize a portion of their retirement savings to give them a source of income that can last for life. However, once you do this, you lose the ability to participate in market gains. Another option is to use an income rider on certain annuities to help create a consistent stream of income while still allowing assets to participate in potential market gains.

Tyler De Haan is director of advanced sales at Sammons Institutional Group.

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