DID YOU KNOW?
DOL RULE NEWS
In its announcement delaying the Rule, the DOL significantly reduced the immediate compliance burden by removing the requirement of delivering a Transition BICE Disclosure and a written fiduciary acknowledgement to clients during the June 9, 2017 to December 31, 2017 timeframe. In lieu of needing to deliver a Transition BICE Disclosure and a written fiduciary acknowledgement to clients, financial advisors will instead need to adhere to the Impartial Conduct Standards (described further below). While the removal of the Transition BICE Disclosure is welcome news, there is another implication of the rule that bears your attention. Beginning June 9, 2017, barring any additional delay, the expanded fiduciary definition goes into effect.
What this means to you is that effective June 9, 2017 you will be considered a fiduciary when making investment recommendations to your clients who hold retirement accounts (retirement investors). The result of the Fiduciary Rule going effective will meaningfully impact the way you do business with retirement investors.
Impartial Conduct Standards
On June 9, 2017 financial advisors will have to abide by the Impartial Conduct Standards when providing investment advice to retirement investors. The Fiduciary Rule identifies three requirements for adherence to the Impartial Conduct Standards:
Act in the retirement investor’s best interest
Receive no more than reasonable compensation
Make no misleading statements
Acting in the retirement investor’s best interest – while intuitive and second nature to all of us – will now require a more formal documented process reflecting the prudence and diligence used to arrive at an investment recommendation. Fiduciaries required with upholding the best interest standard of care should use an objective process when delivering investment recommendations, giving appropriate consideration to the relevant facts and circumstances of a client’s financial situation. This is perhaps one of the biggest impacts to our business beginning June 9. Examples of the types of investment recommendations that will now be subject to best interest standard of care are:
Additionally, the following types of recommendations will be subject to a best interest standard of care when placed in a commission-based or solicitor-based relationship:
Asset Allocation Recommendations
Investment Product Recommendations
Money Manager Recommendations
Buy and Sell Recommendations
As result of the changes required under the Fiduciary Rule, financial advisors will need to formalize a process and provide a documented rationale for investment recommendations to retirement investors. As a reminder, below are the impacted retirement account registration types:
ERISA 403(b) Plans
Defined Benefit Plans
Traditional & Roth IRAs
SEP & SIMPLE IRAs
Health Savings Accounts
Archer Medical Savings Accounts
Solo 401(k) Plans
Complying with the Fiduciary Rule and the Impartial Conduct Standards will require IFG to develop new policies and procedures as well as provide training to you, the IFG registered representative, on complying with the best interest standard of care. We are currently revising impacted policies and procedures and will notify you of an upcoming training session – likely late May
May 14, 2018
Dear Members of FPA,
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AS A REMINDER:
All new members have 60 days to enroll with guaranteed issue, no medical questions asked, for any FPA members who have not previously applied for coverage.
As a Strategic Partner, and long-time FPA supporter, Ryan Insurance encourages you to engage with them for more resources as you have a need for them! FPA is here to better assist you in your volunteer efforts and we thank you for your dedication to improving the financial planning profession.
Here is more information on FPA's LTD and other insurance programs offered through Ryan Insurance:
Please feel free to reach out to me if you have any questions or need additional assistance.
Financial Planning Association
When to Start Collecting Social Security Benefits: A Break-Even Analysis
by Doug Lemons
Doug Lemons retired from the Social Security Administration as a deputy assistant regional commissioner after 36 years of federal service. He iscurrently working toward his CFP certification. Deciding when to start collecting Social Security benefits is a major decision that will affect clients and their families for the rest of their lives. It is a complicated decision with many moving parts, including health factors, family longevity, personal financial considerations, and/or occupational vicissitudes. Clients may want to delay taking Social Security to ensure that they do not run out of money in their later years. Conversely, maybe the quality of their early years in retirement would be sacrificed by waiting until later to file for benefits. This decision can become particularly complicated in situations in which the worker is entitled to more than one benefit, when other family members are on the rolls, or when work is involved. A final consideration is the amount of widow(er)’s benefits payable to a surviving spouse in the event of a worker’s death.
Background A refresher on certain key concepts relating to Social Security is needed to begin this examination. Full retirement age (FRA) is age 66 for people born between 1943 and 1954, and gradually rises to age 67 for people born in 1960
• Many factors affect the decision of when to file for Social Security benefits, including health, personal financial considerations,
and employment status. If clients can be flexible in their decision, planners should help them assess the financial advantage of
the options available. One method of assessing the financial advantage is to calculate the break-even age. Break- even is the age when total Social Security income from two retirement options is the same.
• Using break-even calculations, we compare three basic options for when to start collecting Social Security benefits: (1) age 62, (2) full retirement age, which in our examples is assumed to be age 66, and (3) age 70. The calculations are highly dependent upon the numeric value of the variables used in the computations. These include the assumed rate of inflation, the return on investment, and
marginal tax rates.
• Based on statistical averages, if the worker is the only person entitled on the account and the earnings test is not involved, the rate of return must generally exceed the rate of inflation by 5 percent or more to justify taking benefits at age 62 rather than at full
retirement age. At higher inflation rates and/or higher marginal tax rates, the rate of return may need to be even higher, perhaps in excess of 7 percent or 8 percent above inflation to justify taking benefits at age 62.
• The rate of return needs to exceed the rate of inflation by a lesser amount to justify taking benefits at full retirement age rather
than waiting until age 70. It may make sense for a man to start collecting benefits at full retirement age rather than waiting until age
70 if the rate of return exceeds the inflation rate by as little as 3 percent. For a woman whose life expectancy is longer, the rate of
return would need to exceed inflation by 5 percent or 6 percent. At higher inflation rates and/or higher marginal tax rates, the
rate of return may need to be higher.
• The break- even calculation is also affected by the number of other beneficiaries entitled on the worker’s record and/or
whether the worker is entitled on multiple records.
• Every client’s situation is unique. The planner may use the information in this paper to assist clients in conducting breakeven calculations tailored to individual circumstances.
JOURNAL OF FINANCIAL PLANNING | January 2012 www.FPAnet.org/Journal or later. 1 The primary insurance amount (PIA) is the dollar amount a worker receives if he or she waits until full retirement age to start collecting Social Security. The PIA is different for each worker depending on various factors. Although the calculation of the PIA is beyond the scope of this paper, the Social Security Administration does provide this information on its website. 2 In addition, clients may obtain an estimate of their own PIAs with Social
Security’s online retirement estimator. 3
A worker may start retirement benefits as early as age 62, or choose a month of entitlement
(MOE) to benefits in any month up to age 70.4 The PIA is actuarially reduced for age for each month a worker collects benefits prior to FRA. Someone born between 1943 and 1954 who files for benefits at age 62 will have his or her PIA reduced by 25 percent — this is the reduction for someone who files for a retirement benefit 48 months prior to full retirement age.5 A worker’s PIA may also be increased by waiting to take benefits after full retirement age. A worker gets extra credit — called delayed retirement credits — by waiting to take Social Security after FRA. Someone can wait to start receiving benefits as late as age 70 when the benefit amount is the
highest. There is no advantage to waiting beyond age 70 because benefits do not increase any further. For someone born in 1943 or later, the amount of the delayed retirement credit is 8 percent of the PIA for each year beyond full retirement age until age 70, for a maximum credit of 32 percent.
Work and earnings may affect benefits of someone who collects Social Security prior to FRA. In the years before full retirement age,
benefits are reduced by $1 for every $2 of earned income above $14,160 (2011). In the year someone reaches FRA, benefits are reduced by $1 for every $3 of earned income above $37,680 (2011). Once someone reaches www.FPAnet.org/Journal
FRA, there is no earnings limit. There is no advantage to starting Social Security before FRA for someone who earns enough income to prevent him/her from collecting benefits. According to the Social Security Administration, more than 73 percent of the population start taking benefits before FRA.6 Although everyone’s situation is unique, this is not necessarily the most financially advantageous time to start benefits, particularly for those who can be flexible in their decision. If a client
does not need the income immediately, is it more advantageous to claim benefits early or wait until later to start collecting Social Security? Breakeven calculations tailored to individual circumstances can help answer this question.
- Even Calculations
The break-even calculation compares two or more options for claiming benefits. Break-even occurs at the age when the total Social Security income from two options is the same. Other researchers have used this analytical tool, such as Rose and Larimore (2001) and Muksian (2004, 2006). I expand on some of this research by considering variables that affect the break-even calculations through analyses of increasingly complex case studies. The variables include inflation, taxes, and the time value of money. To illustrate the conclusions I have created Excel spreadsheets that incorporate these variables.
This paper compares the option of starting benefits at age 62 with starting at age 66, and the option of starting at age 66 with starting at age 70. These time frames are used because they are key dates for reasons explained above. However, comparing other months of entitlement is also likely to consider the option of filing for benefits prior to FRA. The Analysis Begins A worker born March 2, 1949, is considering retirement at age 62 with a month of entitlement (MOE) of March 2011, versus retirement at age 66 with an MOE of March 2015. His reduced Social Security Benefit at age 62 is $750. If he waits until full retirement age at 66 he receives $1,000. By taking the lesser benefit now, his benefit is permanently reduced by 25 percent or $250 per month. Let us enter the information into a
spreadsheet that will be used for all future scenarios (see Table 1). Although the worker in our example was born in 1949, the calculations would apply to anyone whose full retirement age is 66 — someone born between 1943 and 1954.
Basic information is entered into the first column. The “# Months” column shows the number of months in the
calendar year for which benefits are paid. The PIA is the dollar amount of a worker’s Social Security Benefit at full retirement age. The column labeled “MOE 03/11” shows the monthly amount along with the accumulated total benefit amount. At
the end of 48 months or in February 2015, the month prior to full retirement age, the individual will have accumulated $36,000. This is the initial monetary advantage gleaned from filing for benefits at age 62. The last column, “MOE 03/15,” compares the monthly benefit amount and the total benefits accumulated if the individual files for Social Security at full retirement age, in this case 03/15. You may compare the total benefits accumulated year by year. At the end of February 2027, or 144 months after full retirement age, the two amounts are the same — $144,000 total accumulated benefits. This is the break-even point. For possible. In all of the examples I presume that the earnings test is not a factor, because individuals who are still working may not be as each month after February 2027, the accumulated benefit amount is greater
Full article and
January 2012 | JOURNAL OF FINANCIAL PLANNING 53