Why Social Security Should Not Be Your Only Form of Retirement

For many Americans, Social Security is a cornerstone of retirement planning. However, relying solely on Social Security for retirement income can leave your clients financially vulnerable. As a financial advisor, it’s important to guide your clients toward building a more comprehensive retirement strategy. With rising healthcare costs, increasing life expectancy, and the unpredictable economy, a diversified retirement plan is essential for ensuring long-term financial security.

Here are five key reasons why Social Security should be just one piece of your clients’ retirement puzzle—and how additional tools like long-term care (LTC) insurance and permanent life insurance can fill the gaps.

Social Security Benefits Are Not Enough

The average Social Security retirement benefit in 2024 is around $1,976 per month, but most retirees will find that this amount only covers a fraction of their living expenses. The Social Security Administration (SSA) estimates that benefits replace about 40% of the average worker’s pre-retirement income. In contrast, financial experts recommend aiming for 70% to 80% of pre-retirement income to maintain a comfortable lifestyle in retirement.

Advisors should emphasize the importance of additional income sources, such as personal savings, employer-sponsored retirement plans, or annuities, to supplement Social Security.

Cost-of-Living Adjustments Aren’t Keeping Pace With Inflation

Although Social Security benefits are adjusted annually for inflation through Cost-of-Living Adjustments (COLAs), these increases often lag behind real inflation, particularly in key areas like healthcare and housing. For 2025, the COLA is expected to rise by just 2.5%, the smallest increase in four years, despite retirees facing higher living costs.

Rising medical expenses are a key concern. Even with Medicare, retirees face out-of-pocket costs like premiums, deductibles, and prescription drugs, which can quickly add up. To help offset these expenses, advisors should recommend long-term care insurance as part of a comprehensive retirement strategy.

Longevity Risk: Planning for a Longer Life

With people living longer than ever, clients need to plan for 20 to 30 years or more in retirement. Relying solely on Social Security could result in retirees outliving their savings, leaving them financially strained in their later years.

Incorporating permanent life insurance into retirement planning offers a twofold benefit: death benefit protection for heirs and a cash value component that grows tax-deferred over time. This cash value can be accessed in retirement as a supplemental income source, providing an additional layer of financial security that Social Security alone cannot offer.

Healthcare Costs Can Derail Retirement Plans

Healthcare is one of the biggest financial risks for retirees. Medicare covers basic medical needs, but it doesn’t include long-term care, which can be a substantial expense. According to Genworth’s 2023 Cost of Care Survey, the median cost of a private room in a nursing home is over $100,000 per year. Without a plan for these costs, retirees could quickly deplete their savings.

This is where long-term care insurance comes into play. LTC policies help cover the cost of extended medical care in nursing homes, assisted living facilities, or even in-home care. By including LTC insurance in their retirement planning, clients can protect their assets from being drained by unexpected healthcare expenses, while preserving their savings for other needs.

Permanent Life Insurance: A Versatile Financial Tool

In addition to providing a death benefit, permanent life insurance policies (such as whole life or universal life insurance) build cash value over time, which can be accessed during retirement. This can serve as a tax-advantaged income stream or be used to cover unexpected expenses, including healthcare costs or other financial emergencies. The cash value can also provide financial flexibility without the penalties and restrictions associated with traditional retirement accounts like IRAs or 401(k)s.

Permanent life insurance can be especially valuable for higher-income clients or those who want to leave a legacy for their heirs, while also providing a financial safety net during retirement.

Building a More Secure Retirement Plan

A well-rounded retirement strategy should account for more than just Social Security benefits. As a financial advisor, your goal is to help clients diversify their income sources and protect against the financial risks that come with retirement. Consider these key elements:

• Maximize Retirement Accounts: Encourage clients to contribute as much as possible to tax-advantaged accounts like 401(k)s, IRAs, and Roth IRAs. Employer matching contributions should be fully utilized to boost retirement savings.
• Incorporate Annuities for Guaranteed Income: Annuities can provide a steady stream of income that complements Social Security, helping clients feel more secure in their retirement.
• Use Long-Term Care Insurance: LTC insurance can protect clients from the high costs of extended medical care, ensuring their savings last longer.
• Include Permanent Life Insurance: Permanent life insurance not only provides a death benefit but also offers flexible access to cash value that can be used during retirement.
• Diversify Investments: A diversified portfolio can help grow wealth and reduce risk, ensuring clients have multiple income sources in retirement.

Conclusion

While Social Security is an important part of retirement planning, it should not be the only source of income your clients rely on. By integrating long-term care insurance, permanent life insurance, and other investment tools into their retirement plans, you can help clients achieve a financially secure and comfortable retirement.

At Advisors Accelerated, we provide financial advisors with the tools and resources to create comprehensive retirement strategies for their clients. Reach out today to learn how we can assist you in delivering peace of mind and long-term security for your clients.

Contact us today to learn more about our services.

Advisors Accelerated is located at 540 Enterprise Drive, Lewis Center, OH 43035.