Are Your Clients Prepared for 2034?

The Congressional Budget Office Report projects that with no changes, Social Security benefits are expected to be reduced by 25% by 2034. Because of the powerful effects of compounding interest, now is the time to ensure your clients and their employees are prepared for this reduction, possibly through the enhanced savings opportunity of a small business retirement plan. Today, we’ll explore this issue, its impacts, and how savvy financial advisors are already leveraging it to broaden their client base.

Key Takeaways:

• Old Age and Survivor’s Insurance and the Disability Insurance fund is expected to deplete by 2034.
• Social Security funds are not being replenished, causing it to dwindle.
• A small business retirement plan like an ePlan Services 401(k) can help your clients and their employees prepare.

What will change in 2034?

The money you invest into Social Security with deductions from your paycheck doesn’t just go into a separate account for you. It helps to fund Social Security benefit payments to all retirees and their beneficiaries.

Currently, retirees can look forward to receiving their full Social Security benefits to help with their cost-of-living expenses; however, this will change as soon as 2034. The CBO states that the combined Old Age and Survivor’s Insurance, (OASI) and Disability Insurance fund is projected to deplete by 2034. Less Social Security benefits funding means that instead of receiving their full Social Security benefits, retirees can expect to receive only 77% of them.

Why will Social Security benefits decrease?

What was once a surplus is now dwindling, as the Social Security Administration pays out funds from a supply that is not being replenished quickly enough. What has caused this net outflow?

As with many things, the reasons are complex and interconnected. Thanks to advances in medical technology and knowledge, experts have found that retirees and their beneficiaries are living longer. And, due to the declining birth rate that followed the baby boom generation, there are comparatively fewer workers contributing to the Social Security benefits of many retirees. This disparity is expected to deepen this century.

How can you help your clients prepare? 99% of businesses in the United States are small—that is, they have less than 500 employees—and they employ 46% of the country’s workforce. With Social Security benefits estimated to decrease by 23%, it’s imperative that you present your business-owner clients with the option of establishing a small business 401(k) retirement plan.

This way, their plan participants can still enjoy a percentage of their Social Security benefits to help with utility bills, medical expenses, etc., but they can also count on their 401(k) funds to help make up the shortfall when they transition into retirement. To maximize the effect of compounding interest, time is of the essence: 2034 is only ten short years away.

How will this impact your business?

Giving your clients access to a beneficial small business 401(k) retirement plan equips them with the tools they need to empower their employees to retire comfortably. Plus, employers may receive beneficial tax breaks such as a start-up credit, an auto-enrollment credit, and an employer contribution credit that can further fund their business and plan service fees.

Helping your clients can also help your business thrive thanks to potential client referrals and positive reviews that generate good word of mouth. Satisfied clients may even feel motivated to purchase other services you offer, such as accounting or financial planning.

Conclusion:

With Social Security funds decreasing, many workers without a retirement account will not have a soft place to land. As a financial advisor, you have an opportunity to help your clients take better care of their employees by preparing them for 2034.

Educating your clients on the necessity of employee retirement plans will position you as an advisor they can trust. Not just any retirement plan will do, either—pick carefully. Considering the current incentives, small business owners will likely see more value in a small business retirement plan because it will help their employees as well as give back to their businesses. This is your opportunity to help ensure that your clients are prepared for 2034.