James Sullivan
James Sullivan
Translate Opportunities for Practice Growth

How baby boomers can help.

December 17, 2009
by James Sullivan, CPA, PFS

How do you translate the aging of the U.S. population into an opportunity to grow your financial planning practice? Elaine Floyd, director of retirement and life planning at Horsesmouth, LLC, believes that CPAs have an opportunity to grow their practices by learning the complex Social Security rules and assisting clients with determining the best distribution strategy.

CPAs are analytical and are used to the complexities of the tax code – the Social Security rules can be almost as complex, according to Floyd. Baby boomers are demanding more information and planning strategies regarding their Social Security benefits. CPAs are in an excellent position to respond.

To help advisors respond to the increasing demand from clients for information, in 2009 Horsesmouth published Floyd’s The Financial Advisor’s Guide to Savvy Social Security Planning for Boomers. Floyd will be speaking at the AICPA Advanced Personal Financial Planning Conference in January.

Boomers Reach Early Retirement Age

This renewed interest in Social Security coincided with boomers reaching age 62. This is the earliest age at which a Social Security benefit may be applied for absent a disability.  The vast majority of boomers, however, know very little about Social Security. After all, financial advisors spent years telling clients not to factor Social Security into their retirement income projections. Unlike their parents and grandparents, boomers and their advisors had little confidence in the long-term viability of the system.

Beginning in 2008, the oldest boomers reached age 62. Contrary to expectations, Social Security was still mailing monthly checks and benefits were not cut. While Social Security still has long-term financing problems, it appeared that at least for the near term boomers could count on the income.

In late 2008, the virtues of Social Security became even clearer.

Social Security’s Value Rediscovered

With the financial collapse of 2008 came job losses, shrinking retirement nest eggs and substantial drops in home values. Boomers began to have greater appreciation for Social Security’s attributes — a government guaranteed monthly income stream adjusted annually for inflation.

For all but the wealthiest retirees, the present value of Social Security payments is significant. For example, a $1,500 monthly payment beginning at age 66 (full retirement age for those born after 1942, but before 1955) is the equivalent of a $302,000 single-premium inflation adjusted immediate annuity for a male; $339,000 for a female.

Planning Beyond the Breakeven Point

In the past, many advisors limited their Social Security planning to calculation of the “breakeven point.” They compared their clients taking an early, reduced Social Security benefit versus taking a larger delayed benefit. In general, reduced benefits are available as early as age 62.

Unreduced benefits are available at full retirement age. An even greater benefit can be obtained by delaying the benefit until age 70 (these “delayed retirement credits” or DRCs increase the monthly benefit by eight percent for each full year of delay).

For example, a client is trying to decide whether to take a benefit of $1,500 per month at age 66 versus a benefit of $2,041 at age 70. The breakeven analysis would show that the client would have to live until his or her mid- to late-70s for the delay to start paying off. If the client died before the breakeven date, he or she would have been better off taking the benefit early. A healthy client expecting to live well beyond the breakeven point might consider the risk of a delay worth taking. But Floyd and others (see James Mahaney’s and Peter Carlson’s article Rethinking Social Security Claiming in a 401(k) World) argue that the breakeven analysis is insufficient, especially for married couples.

Social Security Mysteries: File and Suspend and Deemed Filing

A woman or man may receive Social Security benefits based on a current spouse’s, ex-spouse’s or deceased spouse’s work record. Unless the Social Security benefit they earned based on their own work record is larger, it makes more sense to take a spousal or survivor benefit.

This appears simple enough. Take the larger benefit.  There are, however, planning opportunities for married couples who many advisors overlook. For example, prior to the Senior Citizens’ Freedom to Work Act of 2000, the lower earning spouse could not apply for his or her spousal benefits (equal to one half the benefit received by the higher earning spouse) until the higher earning spouse filed for and began receiving benefits. With the passage of the Freedom to Work Act, the higher earning spouse can “file and suspend” meaning he or she can file for benefits but suspend receipt of the benefits to a later date. The lower earning spouse in the meantime may file and begin receiving their spousal benefit.

What is the benefit of this strategy? By suspending receipt of benefits, the higher earning spouse continues to earn delayed retirement credits. If he or she then elects to begin receiving benefits at age 70 not only is the benefit higher — but should he or she predecease their spouse - the lower earning spouse will step up to the higher benefit being paid to their spouse just prior to death. Focusing just on the breakeven point of the husband and wife separately misses the greater benefit paid to the surviving spouse. In many marriages today, the wife is the lower earning spouse and typically receives a benefit based on her husband’s work record (although this is changing as more women earn a greater benefit based on their own work record). Since the wife is typically expected to live longer than her husband the value of the increased survivor payments due to file and suspend strategy can be significant.

“Deemed filing” means that if your client files for a benefit before they reach their Full Retirement Age they will receive whichever benefit provides them with the greatest monthly payment. The client cannot pick and choose. For example, taking a lower spousal benefit and allow the benefit they are entitled to based on their own work record to continue to grow until they take it at Full Retirement Age. After Full Retirement Age, however, the client can pick and choose. The higher earning spouse may decide to take the smaller spousal benefit he or she is entitled to and allow their own benefit to grow due to DRC.


According to Floyd, it is possible to separate yourself from your competitors by becoming a student of the Social Security rules. As more and more boomers begin to line up for benefits, the need for knowledgeable experts is growing. CPAs can grow their practice by demonstrating through articles, seminars and during client meetings, their mastery of the Social Security rules and distribution-planning alternatives.

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James Sullivan, CPA, PFS, MAS, is an investment counselor at Core Capital Solutions LLC. He has almost 25 years of experience in individual tax, investing and personal financial planning. Before joining Core Capital Solutions, Sullivan spent 20 years at Arthur Andersen LLP. He is a member of the AICPA PrimePlus/ElderCare Task Force.