In every financial firm, no matter if the firm is a Securities only shop or the firm is one that caters to life insurance sales only the hot topic that every financial advisor/producer is talking about is Social Security and for good reason, the public is craving information.
The problem, though, is much more complicated than what meets the eye and because of that it will lead to significant issues in the future as many financial professionals will ultimately pay the price of not meeting the fiduciary standard.
When an advisor or producer delves down the rabbit hole of Social Security the discussion is usually on strategies on when to take the benefit or if a client should “file and suspend” or “restrict the application”, but what is absolutely amazing, is the fact that the advisor doesn’t also mention the other public information that the federal government is constantly chattering about – health costs.
Here are the facts:
- In order to even collect Social Security you must accept Medicare too when eligible or you will lose all current, future and even past benefits received. How many financial firms gave you that fact? Currently, none.
- Your Medicare premiums and all surcharges due to income as well as any possible late enrollment penalties will be automatically deducted from your benefit.
- That’s right, the amount of Social Security you may believe you are going to receive is probably not going to be the same as what you are really going to get and this is the underlying issue that the financial industry will have to deal with.
- Due the this public information about how health costs impact the overall financial plan, which is all public record, if enough people are damaged there may just be a possible class action lawsuit for failing to meet the fiduciary standard.
Think that last comment is impossible, think that there are not going to be very angry, newly retired, former, investors who have just realized that what they planned for was not actually in the cards? Think again.
Here is why: the federal government is not hiding the facts of what may happen and is, in turn, telling every single person they can about what is to come. There are statements produced with each Social Security announcement people receive as well as the President even stating in both his State of the Union Address and his Fiscal Budget of the probable issues that lie ahead for us.
Each person that is advancing to retirement is being fair warned about this income surcharge or IRMAA from the federal government and the evidence points as far back as 2007 when even the Congressional Budget Office (CBO) announced the news via a simple chart:
This chart below is supposed to detail how the entitlements of Medicare/Medicaid, Social Security and even the Budget will be impacted through 2080.
See anything odd?
That’s right, Social Security and the Budget flat line even though the financial industry keeps pushing the passive pill of Social Security is going broke and you need to take advantage of it.
Please don’t get me wrong, you have to plan for Social Security, but it ain’t really that hard to figure out. You either take the money when you have to have it (tap your 401(k) well before enrolling into Medicare if you can) or delay until age 70.
Yes, there are strategies that allow you to make a few extra thousand from the government, but do you really think that federal government hasn’t created trap doors to place those earning too much income in retirement in a bit of bind later on?
See, again, income drives health costs and the more income you have the higher costs you will have, which equates to you having less and less Social Security benefits.
This is why, back in 2007, the CBO released that chart. Those on the “Hill” knew that 2007 was the first year that Medicare implemented the IRMAA and that, eventually, most of those investors who took advantage of the federal government’s willingness to give away money would generate enough income to hit the point of never even receiving a Social Security benefit anyway.
Ultimately, what you don’t know about retirement, and what is, for right now, being ignored, which just so happens to be public record, is:
- Your Social Security pays for your health care.
- Your healthcare is determined by how much income you have.
- You have to, BY LAW, have health coverage.
- Social Security is only expected to increase the cost of living adjustments by 2.8% at maximum.
- Medicare is inflating at 7.5% before the income adjustments.
With the fiduciary rule being expanded even further those who have the responsibility of helping others invest assets and plan financially for the future may be placing themselves in harm’s way by neglecting to disclose this information of health costs.
Social Security is something that should be planned for, but if a financial professional is going to hold herself or himself as the person whom is giving that advice then that financial professional may just be held responsible for giving the other half of the story too.
But, the problem, again, not one financial firm or even professional is telling the whole story.
