When to take Social Security? Employers adding advice to 401(k) plans

Deciding when to file for Social Security is no simple task, and most Americans don’t handle it well. But increasingly, help is available from an unexpected source: your employer.

The nation’s largest independent investment financial advisory firm is rolling out a service today that walks 401(k) plan participants through their Social Security claiming options, with the aim of helping them maximize benefits. Financial Engines, which works with provides advice through company retirement plans, will show participants how to integrate their Social Security income plan with drawdown from retirement savings. The service includes an online tool and optional one-on-one guidance from advisers.

This isn’t the first service of its type, but Financial Engines’ large presence in workplace plans means the service will be available immediately to 9 million 401(k) savers. Meanwhile, a more limited free version of the Social Security claiming tool – lacking integration and one-one-one advice – is available to all on the company’s website.

Integrating robust Social Security planning tools into 401(k) plans is a positive development. Social Security is the most important retirement benefit for most Americans, but most of us leave big dollars on the table in lifetime income by failing to pick the optimal filing strategy.

For couples, Financial Engines and other advisors often recommend file-and-suspend strategies. Here, the spouse with the higher PIA–typically the man–files for benefits at his FRA, then immediately files a notice to suspend payment of those benefits. That permits the lower-PIA spouse to file for a spousal benefit, which is equal to half the husband’s benefit.

That gets some income flowing to the household while the husband continues to accrue higher benefits until he files to start payments, perhaps as late as age 70; the wife then converts to her own full benefit. (Note: The spouse can convert to her full benefit only if she waits until her FRA to file for a spousal benefit.) –

The Obama Administration has proposed curtailing file-and-suspend, calling it an “aggressive” move to “manipulate” the claiming system for the benefit of wealthier beneficiaries. Social Security advisory services dispute that, noting that the strategy is available to anyone, and can even benefit lower-income households more, since they rely on Social Security benefits to replace most of their pre-retirement income.

“I’m not sure why [the White House] proposed that,” Christopher Jones, Financial Engines’ chief investment officer, told me during our interview for Reuters. “The benefits are just as important, or more so, for those of modest incomes. Admittedly, not everyone can afford to defer claiming by using private savings or working longer. But our belief is, this is how the system is set up and you’re entitled to use it.”

“Most people who use this strategy are likely to pay for it by working a few extra years, and that’s more tax revenue to the system, not less.”