As your clients continue to be impressed with your deep insights and accurate forecasting through RightCapital, demonstrate the power of optimized social security withdrawals to maximize your client's assets over time. With over 700 filing strategies, this tool simplifies a complex task and makes you look good!
Key Takeaways:
Examine the income amounts and break-even point for any two filing strategies, within the Retirement > Social Security > Comparison tab.
Compare the cumulative income for all major strategies, in the Retirement > Social Security > Summary tab
Set your preferred Discount Rate for the optimization, within the Gear Icon > Settings > Other Assumptions tab.
Apply the Optimal strategy to your Proposed Plan in the Retirement > Analysis > Action Items.
The Social Security module can be found in the Retirement section within each of your client plans, and is made up of two tabs: Comparison, and Summary:
The Comparison tab within the Social Security module tool allows you to directly compare any two filing strategies, and examine both the annual and cumulative income amounts. You can select the two filing strategies you wish to compare using the drop-down menus at the top right of the graph:
The value displayed on the right-hand side of the chart is the total difference in cumulative income received between the two selected filing strategies.
The Social Security filing options include the Optimal strategy, the Currentstrategy, As early as possible,Full retirement age, and Age 70.
Optimal strategy
The Optimal Strategy is calculated on a per-client basis to maximize the dollars the client(s) will receive through Social Security (more on this strategy below).
Current strategy
The Current Strategy reflects the filing age and benefit amount entered within the Profile > Income > Social Securitycard(s). For more information on how to enter Social Security benefits, click here.
As early as possible
Selecting As early as possible will see the client(s) file at age 62. For clients who are already past the age of 62, it will see them file right away within the plan, based on their current age. Early filing penalties will be factored in when using this option.
Full retirement age
Selecting Full retirement age will see the client(s) file at FRA, based on the birthday(s) entered in the Profile > Family section (you can find a client's FRA by birth year in the full retirement age chart).
Age 70
Selecting Age70 will see the client(s) file at age 70. Delay credits will be factored in when using this option.
The first chart you will see in the Comparison tab is the Annual Cash Flow Comparison chart. This chart will directly compare the annual income amounts between your two selected filing strategies, starting in the first year of retirement and ending in the final year of the plan. By hovering your mouse over the chart, you can see a breakdown of the annual payment amounts for each filing strategy, for each year of the plan. The ages listed on the x-axis of the chart are that of the first client in the plan.
A secondary chart, the Cumulative Cash Flow Comparison, is also available within the Comparison tab. This chart will directly compare the cumulative income between your two selected filing strategies. By hovering your mouse over the chart, you can see a breakdown of the cumulative income for each filing strategy, for each year of the plan. The key metric to the right of the chart will display the break even point between the two filing strategies.
To switch charts, click the dropdown arrow next to the title at the top of the chart, and select the Cumulative cash flow comparison.
The Summary tab will show you the cumulative total income received for each filing strategy. Hover your mouse over the bar chart to see the total income for each individual strategy. The key metric to the right of the chart will highlight the cumulative total income for the Optimal strategy.
The Optimal strategy for Social Security is calculated on a per-client basis, in order to maximize the dollars the client(s) will receive through Social Security over the course of their plan. All potential starting ages are considered, and spousal and survival benefits are incorporated. The optimization considers specific client ages, relative benefit values, and planning horizons, as well as child benefits, family maximums, earnings test adjustments, and your chosen discount rate (more on this below). This sophisticated computation considers hundreds of options using many variables- this is a hearty and robust social security optimizer!
After RightCapital considers all of the plan inputs and has calculated the best option, the result is presented simply and clearly in the Action Items beneath the graph:
Demonstrate value to your clients
Powerfully demonstrate your ability to help your clients achieve their preferred retirement lifestyle by comparing the optimal social security strategy with the other common social security strategies, as provided in the drop-down menu. Many advisors indicate that this one tool from RightCapital is able to grow their book of business and secure clients for many years.
The Social Security module also allows you to incorporate a discount rate when calculating the Optimal strategy. This setting will reduce future Social Security benefits within the Retirement > Social Security tab by the percentage indicated, and is an important factor in accounting for the time value of money when running an analysis on estimated future benefit amounts.
To enter a discount rate, navigate to the Gear Icon > Settings > Other Assumptions tab, and change the “Discount rate used for optimization” setting:
What Discount Rate Should I Use?
There are various schools of thought when it comes to determining the “correct” discount rate for optimal social security filing:
Some experts maintain that the only appropriate rate is the current yield on long-term government bonds.
Others argue that the discount rate should reflect the long-term rate of return being used within the plan (the return that could be generated over time if that money were available today to invest).
Ultimately, RightCapital gives you the ability to choose your preferred discount rate on a per-client basis.
When ‘General Inflation’ is chosen, the discount rate will mirror your General Inflation Rate. This will functionally bring all future Social Security benefits back into today’s dollars (much like the ‘Today’s Dollars’ toggle in the Retirement Analysis).
Customized discount rate:
When ‘Customized discount rate’ is chosen, a custom discount percentage can be entered. The discount rate will reduce all future Social Security benefits by the percentage indicated.
Once a discount rate is chosen, all filing strategies (including the ‘Optimal Strategy’) within the Retirement > Social Security tab will be recalculated using the new, discounted values. This can potentially result in changes to the filing ages used by the Optimal Strategy in the Retirement > Social Security > Action Items.
How does the discount rate impact the Optimal Strategy?
Although every plan is different, lower discount rates tend to result in later filing ages, whereas higher discount rates often result in earlier filing ages. A discount rate that reflects the long-term rate of return within the plan allows you to see the impact of receiving Social Security income earlier and investing it, rather than delaying income to receive a larger amount.
A ‘Discounted Values’ toggle will be added to the Social Security Optimization tool, allowing you to toggle back and forth between discounted and non-discounted values for both of the Comparison tab charts. Please note that the ‘Discounted Values’ switch does not impact the optimal Social Security strategy that is calculated and displayed in the Retirement > Social Security > Action Items. When the ‘Discount rate used for optimization’ setting is enabled, the Optimal strategy recommendation will always be shown based on the discount rate.
The Optimal strategy can be reflected instantly within any proposed plan in the Retirement > Analysis section. To apply the Optimal strategy to a proposal, navigate to the Retirement > Analysis module, and scroll down to the Action Items at the bottom of the screen.
In the right-hand column under Strategies, find the Social Security Strategy item, toggle from "Current Strategy" to "Optimal Strategy", and click the Refresh button in the lower right. This will cause the filing ages calculated by the Optimal strategy to be incorporated into your proposed plan:
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