Social Security was meant to supplement retirees’ income, but many Americans rely heavily on their monthly checks.
A large percentage of retired Americans rely primarily on their monthly Social Security checks to cover their expenses, an analysis from the Center for Economic and Policy Research (CEPR) shows. Using statistics from the March 2015 Current Population Survey (CPS), CEPR analysts Alan Barber and David Rosnick estimate about 50% of all people over age 65 depend on Social Security for half of their income.
The researchers also concludes that Social Security accounts for a larger portion of retirement income for minorities. Some 70% of African-American and Hispanic respondents reported that they receive half of their income from the program. For those in the lowest economic brackets, the percentage of income coming from the program rises to 90% for one in four Americans age 65 or older.
As the cost of living steadily rises, those on a fixed income must budget wisely and protect their assets. And that’s where insurance agents who work with retirees — or clients nearing retirement — can help.
Understanding Social Security
In light of recent reports that Social Security and Medicare may face funding shortfalls sooner rather than later, your retired clients may be anxious about the future of these programs. They may also be concerned about how they can best prepare themselves for future expenses considering the locked-in rates Social Security provides.
Remind your clients that it’s up to them when to start drawing Social Security. The earliest they can begin is 62, but by waiting a few more years, the monthly amount they’ll receive increases. That said, the lifetime benefit will likely work out to be the same since the program bases its payments on average lifespan. Therefore, deciding when clients should begin taking Social Security will depend on their financial situation as they near retirement.
If they’re not already aware, clients should know that Social Security is intended to replace only 40% of an average worker’s pre-retirement wages. This year the average Social Security check totals $1,404, which adds up to an annual income of $16,848.
To enjoy a comfortable retirement, your clients will require other sources of income such as products that protect their hard-earning savings from unexpected expenses. Annuities, life insurance, and long-term care insurance do just that. Whether your clients are retired or getting ready to, it’s important to sit down with them to review what they’ll need to supplement Social Security.
For example, when Fidelity calculated its Retiree Health Care Cost Estimate for somebody turning 65 this year, it came up with a figure of $280,000. While this only represents what seniors can expect to pay for medical expenses during retirement, it underscores just how proactive retirees need to be to ensure their quality of life across different types of spending.
For agents, the CEPR’s study highlights the need to consult with prospects and clients about their income needs once they stop working. Even if they think they have everything planned out, there’s nothing wrong with exploring how longevity products can help them throughout their golden years.