How to Help Employees Optimize Social Security Benefits

According to a recent survey by AARP, the average age of people who started taking Social Security retirement benefits in 2022 was about 65. In addition, nearly a quarter of claimants were 62, the earliest age of eligibility (also the age at which you get the lowest monthly payment). Only 10% were at least 70 years old, the age at which you can get your highest monthly payment.

Other recent research, from the Schwartz Center for Economic Policy, found that delayed claiming of Social Security benefits can be a valuable way for defined contribution plan participants to generate lifetime income. The Schwartz report noted that if a hypothetical retiree was born in 1960 and filed for Social Security in 2022 at age 62, they would receive a $1,400 monthly benefit. The same person would receive a $2,000 monthly benefit if they waited until age 67 (their full retirement age), and a $2,480 benefit if they waited until age 70.

Show Them The Money

Over the past few years, there has been a lot of attention given to in-plan annuity products and other types of guaranteed lifetime income solutions. While they may have potential given the needs of your employees, you may want to first consider offering tools or resources to help employees maximize their Social Security benefits. Some of the tools that can aid in this process include:

Make Educational Resources Available. Retirement plan sponsors can provide educational resources, workshops, or seminars to help employees understand the complexities of Social Security and make informed decisions. Topics should focus on things like benefit tradeoffs at age 62 through age 70, life expectancy at various retirement ages, spousal benefits, survivor benefits, and the impact of working during retirement. Another topic to focus on is the future of Social Security trust fund. Employees should understand that while there may likely need to be some changes, the benefit will not go away.

Strongly Encourage Employees to Create a Social Security Account. Plan sponsors should consider continually messaging employees about how to set up an account on SSA.gov and the advantages of doing so ( versus waiting until they’re just a few years away from retirement). The sooner they create an account, the sooner they can begin reviewing the accuracy of their earnings history each year, seeing their projected monthly payouts at various ages and have access to other tools and resources. Messaging could be added to quarterly statements, newsletters and other regular communications.

Provide Social Security Benefit Calculators. Online calculators can help individuals estimate their projected Social Security benefits based on various factors. These tools often consider variables like retirement age, earnings history, and spousal benefits. You can work with your plan recordkeeper to make this available.

Provide Claiming Strategy Software. Specialized software can analyze different claiming strategies to determine the most advantageous time for an individual to start receiving Social Security benefits. These tools often take into account factors like life expectancy and the impact of delayed retirement. You can work with your plan recordkeeper to evaluate this as a potential resource for employees.

Provide Access to Consultation Services. Offering access to financial advisors or consultants who specialize in retirement planning, including Social Security optimization, can be valuable. Employees may benefit from personalized advice based on their unique financial situations.

Of course, some employees will need to take Social Security benefits early for a variety of personal reasons. No matter what the situation may be, clear communication and education about Social Security optimization can empower employees to make well-informed decisions about their retirement benefits.