The latest budget deal passed in Washington contains a bombshell for Social Security recipients. Tucked away in the arcane legalese were small but significant changes to two strategies known as “File and Suspend” and “Restricted Application.” —
File and suspend, according to AARP, “is a strategy that can raise benefits for qualifying couples through the use of a combination of spousal benefits and what Social Security calls delayed retirement credits.”
Restricted application acts in a similar manner, and allows a recipient to apply for benefits based upon their spouse’s earnings history while delaying benefits based upon his or her own earnings history.
While only a relatively small percentage of beneficiaries acquitted themselves of the strategies, they were nonetheless experiencing a steep rise in popularity, which was expected to continue in coming decades due to generational demographics and longer life spans.
No longer; and the sudden change has American workers and retirees wondering what’s next. It’s no small concern. The traditional stereotype of the senior citizen dutifully clipping coupons and waiting for their monthly check has been replaced by thousands of possible claiming strategies and the sophisticated integration with 401(k)s and other portions of the retirement portfolio.
Market turmoil combined with radical changes to an effective, overwhelming popular and increasingly complicated government program—it’s why financial experts are saying now, more than ever, it’s critical to get advice from an advisor who acts in a fiduciary capacity on behalf of their clients.
The fiduciary standard is getting a lot of attention on Wall Street, Main Street and the lobbying firms of K Street. The current standard only requires financial intermediaries to act in good faith (which the overwhelming majority undoubtedly do), but they’re not necessarily required to do the absolute best for the client’s individual situation and financial plan.
The Department of Labor, with the backing of the Obama Administration, wants to change that, and has proposed a fiduciary rule that they say “will put investors first.” Not unexpectedly, it’s met with stiff industry resistance, and for good reason. The definition of fiduciary as contained within the proposed rule in vague, they argue. If one mutual fund is more appropriate than another for an investor’s risk tolerance and investment goals, but slightly more expensive, it nonetheless might expose the advisor to sanctions from regulators or legal action for not offering the absolute cheapest product.
The fear isn’t unfounded, as class-action lawsuits against advisors have steadily increased since the economic downturn of 2008, both to recoup investment losses suffered in the crash, as well as for what plaintiffs feel are blatant violations of an advisor’s fiduciary duty.
The solution, say advisors like Lee Perkins, is to seek advice from industry practitioners that aren’t waiting for new regulation, and are already acting in a fiduciary capacity for their clients.
“The recent changes and uncertainty in Social Security claiming strategies, combined with the demise of pensions and other defined benefit plans, means investors will have to rely more on savings, 401(k)s and other investments for which they themselves are responsible,” says Perkins, president and financial planner with Macon, Georgia-based JL Perkins Wealth Management. “This is why they have to have someone who is acting in their best interest.”
One way to identify a so-called “fiduciary financial advisor” is if they currently specialize in a particular financial area, rather than a generalist that tries to be all things to all people.
“Someone who might be well-versed in conservation and preservation strategies for the client’s savings, rather than accumulation specialists, would be one example,” Perkins concludes. “One of the keys to success for retirees or pre-retirees is reducing volatility. By properly positioning their assets and withdrawing income in the proper sequence (taxable vs. tax-deferred, Social Security vs. their 401(k)), it safeguards the money lasts. Large increases in account values generally won't have as much of an impact as major decreases in account values, so reducing that volatility reduces investor anxiety, no matter what comes along.”
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