Kelton Corcoran is a senior content marketing specialist at NaviPlan, the financial planning technology provider of choice for more than 140,000 financial professionals.
For the first time since 1982, the costs of Social Security are projected to exceed its income in 2020 according to a recent report issued by the trustees of Social Security and Medicare.
The program, on which nearly 62 million Americans currently rely for retirement and disability benefits, will then be forced to draw from its trust fund of nearly $3 trillion to cover benefit payouts. This fund is expected to be depleted by 2035, at which time Social Security will no longer be able to be paid out at its full scheduled amounts without additional funding from Congress.
Whether or not Congress decides to make a change to improve the current fate of Social Security, this news serves as an excellent reminder to both financial advisors and their clients that accurate retirement planning needs to be a top priority.
The increasing importance of cash flow analysis
As mentioned in one of our articles from last year, financial planning is less about being able to predict the future, but rather preparing for its unpredictability.
The cash flow analysis element of financial planning becomes crucial in the preparation for long-term financial milestones such as retirement and uncertainties such as this one emphasize that importance. When compared to exclusively using the simpler goals-based planning approach, cash flow analysis is better equipped to handle life’s unexpected changes in the long run and helps advisors understand the extent to which a small change can ripple with other factors in play. And with each added uncertainty in life, the value of cash flow analysis’ long-term accuracy increases.
As esteemed financial planning industry expert Michael Kitces explained in his article “The Problem With Goals-Based Financial Planning,” the goals-based planning approach works well for clients who come in with all the details of their financial situation, know exactly where they want to go, when they want to retire, and each step along the path to that goal. Unfortunately, this is not realistic for the majority of clients. The unpredictability of life often gets in the way of a perfectly choreographed retirement journey.
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Thankfully for advisors, achieving this level of accuracy with cash flow analysis continues to become easier and is far from the burden it once was. Back-office integrations and account aggregations capabilities, such as those found in NaviPlan, expedite the data gathering process and save advisors time when providing precise recommendations. Once a client is onboarded, advisors can then use a scenario management tool to help navigate client concerns such as: “What happens if I only receive, 75, 50, or 25 percent of my previously expected Social Security benefits?”
Advisors who bring this level of analysis to their clients can quickly build a trusting client-advisor relationship and pursue upselling opportunities such as a retainer for more comprehensive planning coverage, or annuity and other investment offerings to cover for the shortfalls that lower Social Security benefits may introduce.
Encouraging more consistent plan engagement
To maintain the accuracy that cash flow analysis brings to financial plans, more consistent plan engagements are key and encouraging clients to do this on their own can lead to higher success rates.
With income totals from Social Security less certain, advisors will need to get creative on where to make up ground for their clients. One option is to leverage client portal technology to give clients access to their financial plans anywhere and at any time. Within the portal, clients can view their plan details, and manually adjust contributions and time horizons to see how they can impact their retirement goal coverage.
This helps clients identify areas to cut back so they can increase retirement contributions to lessen the impact that reduced Social Security benefits may have on their retirement timeline. As mentioned in our whitepaper “Embracing the Third Wave of financial planning,” clients have become far more willing to increase their participation in the planning process as 67 percent of global respondents to a 2017 Accenture study indicated they would provide more data with their institution if it provided greater value to them.
Showing clients the various scenarios that can result from lower Social Security benefits and arming them with the tools they need to prepare for those situations will not only increase their likelihood of success but also an advisor’s ability to gain additional upselling revenue and build a long-lasting, sturdy book of business.
What the future holds for Social Security may be uncertain, however financial advisors can leverage this holistic planning approach for any number of life’s unexpected financial events.
For more information on the cash flow analysis and plan engagement functionality found within NaviPlan, click here >