Straight Away or Better to Defer

Sometimes it is good to answer questions straight away. Sometimes it is better to defer.

As a plan sponsor or business owner, answering investment questions from employees, such as “What should I do about the 401k?” is something you should stay away from. Send those questions to the plan adviser.

One topic you might want to have a continually growing grasp of is social security. Many employees seek advice or have questions about their personal situations, and knowing how this tool works can help the employee by giving them some key data points.

As it stands today, most workers in America will rely on Social Security as their primary means of income after they retire. In 2020, the average recipient received $1,530 per month gross of taxes. That may seem like a good number to receive monthly for not having to work (roughly $18,000 gross per year), but the large majority of recipients received less. The low end is closer to $900 per month (or $10,800 per year). Unfortunately, the lowest end numbers are much more common compared to the more sparsely received high end of roughly $3,011 per month for maximum benefit recipients.

Employees can get up to date estimates of their benefit projections by logging into www.ssa.gov and retrieving their annual statement. The information there is helpful on many levels.

Ages for receiving Social Security benefits generally range from 62 to the age that the Social Security Administration (SSA) calls the full retirement age (FRA). Approximately two-thirds of Americans will activate their benefits before they reach full retirement age. Activating earlier than the FRA can leave as much as 30% of the benefit on the table. A study by a subsidiary of Capital One, United Income, Inc., indicates that activating social security prematurely, before FRA, may cost American households $68,000 on average in lost income.

Each case is different, and not all of the common rules of thumb are for everyone. Some people are driven by their thoughts in that area, and can be demonstrated by “It is my money and I am going to get it before it’s gone” or “Social security is going broke, so I better get it while I can.” These attitudes are neither necessarily right nor wrong, but may or may not be in the best interest of the opinion holder. Ironically, the sentiment of not participating in the 401k and receiving social security as soon as eligible usually goes hand-in-hand.

As an employer, there are many reasons to help employees while still allowing them to make their own decisions about their private lives. After all, that’s what makes America great, our ability to choose for ourselves. One educational tool that may be of greater value to your employees is a better understanding of how social security can work along with their 401k benefit in their retirement years. Contact your adviser and schedule time for your employees on social security or other topics like plan features, household finances, or plan investments. The next time you meet with your adviser, ask them about educational tools and how to incorporate them to improve your employees’ outcomes.

Tim Eichhorn is a Partner and Senior Advisor with Rather & Kittrell.