Participants:
Steve Wershing
Julie Littlechild
Mary Beth Franklin
Julie:
Welcome to another episode of Becoming Referable. The podcast that helps you be the kind of advisor people can’t stop talking about. I’m Julie Littlechild and on this week’s show Steve and I are thrilled to be speaking with Mary Beth Franklin. Mary Beth is one of the country’s leading experts on Social Security and Medicare. She is an award – winning journalist, and writes a weekly column on retirement issues for Investment News. She’s also the author of a great e-book called Maximizing Your Social Security Retirement Benefits.
We really wanted to understand the connection between, deep expertise in a specific topic and referrals and Mary Beth is the perfect person to talk to about that. She talks about the impact of being a true expert, both on client outcomes and also on growth. And she talked about how you can leverage expertise to set yourself apart.
Julie:
And with that let’s get straight to our conversation with Mary Beth.
Steve:
Well Mary Beth Franklin. Welcome to the Becoming Referable podcast, so nice to have you.
Mary Beth:
Thank you for the invitation.
Julie:
Yeah. Absolutely.
Steve:
Now, Mary Beth you’re an expert in Social Security and Medicare and for financial advisors who have not specialized in it what are some of the most significant things you think they’re missing in terms of counseling clients who are on their way to retiring?
Mary Beth:
I think they’re missing a great opportunity to be considered a trustworthy advisor. I go all over the country giving educational seminars on Social Security and Medicare. Usually the host groups are either independent financial advisors who are sponsoring client events, or events for perspective clients, or major financial services companies. Clearly, they want to get perspective clients into the room to learn about things like Social Security. And then, later in follow up meetings they might able to discuss broader retirement income planning.
What I found is people are so thankful to get straight forward information about these Social Security benefits that they have worked so hard for and paid so much for. And frankly the claiming rules are very confusing, that they walk away from these seminars saying, “Wow. I really learned something, and nobody tried to sell me anything. Gee, maybe I’ll come back and talk to this advisor when I’m ready to talk about a broader retirement income plan.” I think that is the true value of educational seminars on important topics like Social Security and Medicare.
Steve:
It’s really interesting because it’s such a great example of, how you can project the value differently. Now, we want to spend most of our conversation talking a little bit about the business development aspects of having a specialty like this, but before we do I just want to sort of gauge the value of it from the clients’ perspective you know, how big a difference in outcomes can an advisor, who has this kind of expertise specifically in Social Security and Medicaid create, versus one who’s not so much an expert?
Mary Beth:
Well, although some of the creative claiming strategies are being phased out, they are still available to millions of Americans depending on their birthdate. And it generally affects people who are married, or who are divorced after being married at least ten years. When a married couple coordinates their claiming strategies they can actually increase their lifetime Social Security benefits by a $100,000 or more.
Steve:
Oh wow.
Mary Beth:
Now, that means the timing of one spouse’s benefit versus the other and the fact then when one spouse dies, the bigger benefit continues as a survivor benefit. When you look at that entire continuum of two lives in a survivor benefit easily can increase benefits by over $100,000. An advisor is hard pressed to try to do that with a portfolio.
Steve:
Oh sure. Yeah. And knowing the ins and outs, that’s a pretty significant additional benefit from knowing the rules and knowing how to navigate them.
Mary Beth:
And the next steps. This is just the beginning because before congress changed these rules, it was really, “Hey. Let me get you more money.” Now, that’s going to be more limited, but the next things to think about are the biggest expense most retirees face will be medical expenses. And very few retirees, and unfortunately very few financial advisors realize that how much their clients pay for Medicare premiums depends on their income in retirement, and the sources of those income. For a savvy advisor to be able to guide their clients, into having some sort of tax free money, whether it’s Roth IRA distributions, or health savings account distributions, or cash value life insurance distributions, if they have a small pot of tax free money and they can look ahead to what the Medicare premium surcharge is, what income that will be based on they could literally say, “If you take $3,000 this year out of your tax free Roth IRA, rather than your traditional IRA. You’re going to save $100 a month on Medicare premiums next year.” That’s significant.
Steve:
Yeah.
Mary Beth:
But it’s complicated. And there’s great software out there that can help advisors look at, not just the right time to claim Social Security, the roles of enrolling in Medicare, but the sources of your retirement income and how and where you tap that money will determine not only your income taxes in retirement, but how much you pay taxes on Social Security benefits, and how much you pay for Medicare premiums.
Julie:
It sounds like, and correct me if I’m wrong. From an advisor’s perspective there’s a couple of big issues if I can over simplify. One is having this expertise, having the technical expertise. And the question of course is, “Where do I get that, how do I become that expert,” but then almost separately, “How do I leverage that to attract clients to the business, how do I communicate that expertise?” First of all, would you say those are two of the key categories that we’d need to examine?
Mary Beth:
Absolutely. I think the overarching umbrella is, are you an advisor that’s specializing in accumulation, or are you an advisor that’s going to specialize in distributions? And if you’re on the distributions side, this is really the new game in town for a generation of retiring baby boomers. And the rules are different. And for people who are willing to invest the time, they can really serve their clients better in this transparent, fiduciary rule environment. Because frankly, there is this downward pressure on fees, and upward pressure on, “What am I getting for my dollar. What is your value proposition?”
And for advisors willing to focus on the distribution end, and become specialist in Social Security and Medicare, and the taxation of retirement income, they have an enormous valued proposition.
Julie:
Do you find that’s something easy to communicate to clients? Because, I suppose at one level as a prospective client, or an existing client. If I don’t understand the ins and outs of that. How can an advisor help me understand that he or she is an actual expert, versus just saying they’re an expert?
Mary Beth:
I think with some of the new software that is out right now. I’m actually in the process of writing an article today, about the tax implications of the new tax bill and retirees because, the fact that we have double the standard deduction plus for people who are 65 or older there’s an added benefit. There’s an enormous amount of money that they could take out tax free, depending on the source of the money. If it was, just Social Security income at a certain dollar level it might be tax free, but if suddenly you’ve put in capital gains there, or other sources of income it changes the equation and it’s not intuitive.
There is software now that creates what they call a tax map, that an advisor can show their client, “Look. At this amount of dollar this is your tax bracket, but if you take out an extra $1,000 from your traditional IRA. Woops, that is now going to boost your tax bill by a $1.85, per dollar you take out.” It’s very confusing, but some of this visualization I think is extremely important. And even if the client doesn’t completely understand it, it’s a way to say, “I do. Let me help you.”
Julie:
Well, and it makes it real. You know, rather than having a list of 12 things that I’m an expert in.
Mary Beth:
Exactly.
Julie:
Demonstrate that. Sorry Steve …
Steve:
No. That’s fine.
Julie:
I cut you off.
Steve:
How can an advisor communicate that conversationally before they get the opportunity to see that client in the office and show them the graphic proof of the expertise?
Mary Beth:
Well, again. I think doing a seminar on income taxes of retirement income may be a hard sale. I was just down in a very popular retirement destination in Central Florida called The Villages, where there is a financial services firm that is in the business of doing educational seminars. I just did four back to back seminars on Social Security and Medicare. That’s what I was talking about with some references to the tax implication of some of these decisions. Now, he was inviting clients, “Come back next week and we’ll discuss some of the income tax implications of this.” You get some perspective clients who want to take that deeper dive, others it may be too much, but that’s why I think something like Social Security, where everyone has a vested interest, they’ve paid for this, they’re very interested in knowing how to get the most out of their benefits with no obligation to sign up with a financial advisor. But it may be enough to intrigue them to think, “Gee, what else can this person teach me?”
Steve:
Right. Interesting. Beyond seminars, what other kinds of communication can an advisor have that would help project some of this expertise?
Mary Beth:
Well, I’m in an unusual situation in that, I’m a certified financial planner that does not take private clients. My audience, is other financial advisors. And I communicate with them through my weekly columns, and blogs for Investment News and my in-person presentations. So, my communication method to my audience of advisors tends to be fact based, white papers, research. My role is that, I’m not managing portfolios, I’m not selling insurance, I have time to do the research and interview the academics. My goal is to synthesize this information and get it out to financial advisors that might help them in their practice.
Now, what do they do with that? They may have one on one conversations with their clients, they may hold seminars, they may do E-mail blast newsletters, you know, I think of the white paper as more at the professional level than the consumer level, but there is certainly plenty of ways for advisors. And you know, here’s a classic example, podcasts. I am seeing financial advisors right and left abandoning the old talk radio format on Sunday morning, and going to podcasts.
Steve:
Interesting.
Julie:
And we talk a lot on this podcast about having an area of expertise, or a niche, which this clearly is. Is this a niche that you would say is right for everyone? Is it something that is better suited to particular advisors, or you know, with certain client bases?
Mary Beth:
Well, it’s certainly not for everyone. And again, I do see the financial services profession bifurcating. I see those who focus on accumulation and going after the younger market, where they may be leveraging robo advisors as far as the algorithms to create portfolios. And it can be low cost, and fast, and communicate by text, or you know, email, or phone calls, whatever. But I think on the distribution end, which is very complicated, you also have a trust factor and people have a mental switch, I think, when they move from accumulation to distribution. They get scared. People who don’t have a pension want to know that there is at least some sort of guaranteed income there. And frankly things happen later in life. Your spouse gets sick, your spouse dies. A robo advisor is not going to hold your hand during that funeral. your financial advisor probably will. I think it’s well suited for people who have a high touch practice, where it’s a relationship practice.
Julie:
Well, it’s interesting because you’re pointing out that even though we’re talking about a niche there are other forms. The technical expertise is one thing, but there are other forms of I don’t know, skill sets, or competencies that you need to do this effectively and you know, you’re pointing out that many of those are relationship, or more emotionally driven.
Mary Beth:
Well, let me give you an example. And again, I’m fortunate with my flexible work style that I can also combine business travel and pleasure. And I love talking to people. And I was on a ski trip a couple weeks ago, and I worried because I signed up for a Washington DC ski club and I thought, “Oh no. All these people are going to be 20 and 30.” …
Mary Beth:
Well, no problem. It was like an AARP theater tour. At 63, I was probably one of the youngest people on the group and I could barely keep up with them. They were great skiers, but you know, we were having conversations and the fact is, a lot of people are working past the traditional retirement age of 65, but they don’t understand that the rules for Medicare are different. For example, most people do not realize that when you turn 65 you have a seven-month window to enroll in Medicare, penalty free. Three months before your 65th birthday, your 65th birthday month, and three months afterwards. If you miss that initial enrollment period and you enroll later you are going to pay a 10% per year, delayed enrollment penalty for the rest of your life. Let’s say you enroll at 70, five years late you’re going to pay an extra 50% per month, every month for the rest of your life. Unless, here’s the big unless, unless you continue to work, or your spouse continues to work and you have health insurance through one of those existing employers.
So, here I am on a ski trip and this one couple saying, “Oh yeah. You know, Bill’s going to retire at 70, but no problem. There’s not going to be a delayed enrolled penalty because he’s on Sylvia’s health insurance.” And I said, “Oh, that’s great Sylvia. Where do you work?”, “Well, I retired 10 years ago.” Well, now you have a problem because that’s not existing employer health insurance, that’s retiree health insurance. You’re screwed. And I talked to them about, “Get off her health insurance, re-enroll in your employer health insurance before you retire and you’re going to buy yourself a couple years penalty free and get access to Medicare.” Now, who would know that and why would you expect to learn that on a ski trip? It’s that kind of information … I probably saved this guy extra $100 bucks a month, every month for the rest of his life.
Steve:
Interesting.
Mary Beth:
Advisors can really, if they can identify their market, “Gee, I work in a community where there’s a lot of federal employees, and they have different rules for Social Security and Medicare. I could specialize in this”, “I work in an area where there’s a lot of retired chemists that are working on contract. The rules might be different let me talk to them about that.” It’s finding that niche, as you said identifying these … the likely community that you are most likely to serve.
And then it spreads by word of mouth. People find out how much, and I can guarantee this man is going to tell all his friends of how I helped him save on Medicare.
Julie:
Yeah. Absolutely.
Steve:
Yeah. Good point. Interesting. Are there other characteristics that would go into the right kind of advisor for this? You had mentioned people who are willing to do the work and getting down into it, and people who are focusing on the accumulation phase. Are there other aspects of other advisors, characteristics, personality, technical capabilities that would make them a good candidate for this specialty?
Mary Beth:
I think being a good listener is critical. Because, again, when you’re dealing on the accumulation side you’re basically asking people you know, “Gee, how much money do you think you need to save, what’s your risk profile, are you comfortable in this market, what would you like to do with it,” but it’s moonshot stuff. Once you get to actual retirement it comes down to, “Yeah. I’d like to take that viking cruise once a year.” Or, ” I would like to help my grandchildren save for college.” Or, “I would like that second home in Florida, or Arizona.” There are really concrete wishes and wants. And a financial advisor focusing on the distribution side can really look at those numbers and, “How are we going to make that happen?” And, “How comfortable are you, do you want a certain amount of guaranteed income per month regardless of what happens in the market?”
I think there is a real need for people who are willing to build in downside protection for their clients. And often when you have fee only financial advisors because of the way things like annuities are structured, a lot of fee only advisors have shied away from those kind of products. And now, they’re finding that gee, some of their retired clients really want that protection, “How do I create it for them and build it into my business plan.”
Julie:
For advisors who are looking to really enhance their expertise, you’ve got resources, clearly. I mean through the media work that you do and what not. And we’ll make sure we include some links in the show notes by the way, to anything there. Are there other ways that you think other sources of education that advisors should be looking to, to really add some meat to the claim that they’re experts in this area?
Mary Beth:
Certainly as a certified financial planner myself, we have continuing education credits that we have to fulfill each year and you have a wide range of subject matters. I tend to specialize in things like retirement income distributions, long-term care planning, annuities, reverse mortgages, healthcare costs in retirement, things that really add to my expertise on the retirement side. I am starting to see extra designations like, the American College Of Financial Services offers the RICP. Let me see if I can get this right, Retirement Income Certified Professional, which is an excellent three-part, online course where you can really specialize in these issues of healthcare costs, Social Security claiming strategies, taxation in retirement, all areas that were really not a core part of the CFP program. Certainly, a lot of the mutual fund companies, the record keepers, the Vanguards, the Morningstars, the Fidelities, the Nationwides, have excellent white papers on these topics.
In fact, I was referring to a Nationwide study that I wrote about, in September of 2017 that was a survey of Americans 50 or older by the Nationwide Retirement Institute. It said nearly 80% of future retirees who work with a financial advisor said, they would switch advisors to maximize their Social Security benefits. Compared to about a half of current retirees. So, we do see this movement that, it’s being driven by the consumers, but the potential clients. They know there is a better way to maximize their retirement income. They’re not sure how, but they want to find an advisor who can help them do it.
Steve:
Now, you had said that there are some of the options on Social Security distributions are changing, and some are being eliminated, that kind of thing. What do you see the future bringing in terms of technical complexity of Social Security and Medicare?
Mary Beth:
Well, probably the biggest question I get during the seminars, particularly for people who are younger than retirement age is, “Will it be there for me? I hear Social Security is going broke.” And I do try to clarify that Social Security, the tax revenues from our FICA payroll taxes are earmarked specifically to pay Social Security benefits. In addition, over the last 30 years, when the boomers were still in the work force before they retired, the FICA tax structure was changed so that more money was collected than necessary at the time to build up this surplus that we’ve called the Social Security trust funds.
Since about 2010, the combination of the deep recession in the U.S when many people lost their jobs and therefore were not paying FICA taxes and the beginning of the baby boomers’ first wave of retirement, there was enough money from FICA tax revenues on a daily basis to pay Social Security benefits to existing retirees, plus they started drawing down the trust funds to make good on all those benefits.
Sometime around 2034, if congress does nothing, between now and then the trust funds, surplus money would run dry and there would only be enough tax revenue from ongoing FICA taxes to pay about 75% of promised benefits. No one will be satisfied with 75% of promised benefits, but congress also knows that Social Security is the most popular program in history, and more importantly old people vote. And frankly this is not rocket science. Basically, if you gradually raise the full retirement age, it’s currently 66 for people born from 1943-1954. It will gradually increase to 67 for people born in 1960 or later. By the way, that does not kick in until 2027 more than 40 years after the legislation enacted that. If we gradually increase that full retirement age to say, 70 for today’s two-year-old’s who are going to live to 120, that solves a major part of the long-term financing problem. On the other end of the equation if you gradually let the taxable wage base, which is currently $127,400 a year, we pay FICA taxes on that amount of wages. If you earn more than, that you’re not paying FICA taxes to fund Social Security.
That means there’s about 17% of American wages not being taxed anymore. It used to be 10%. You let that float up, that solves the other part of the problem. As I said, these are not major mathematical problems, they’re political problems, but I think once we get past the 2020 presidential election, I think you’ll see some serious Social Security reform whether it’s part of over all retirement security reform, or stand-alone, or wrapping in Medicare, I can’t tell. All of those critical legs of the traditional three-legged stool of retirement security needs to be looked at again.
Julie:
That’s all – you realize why you need expertise as you talk.
Julie:
You told a quick story about the ski trip earlier, if I can go back there and the money that was saved. Now, to me that’s kind of an obvious way to generate referrals through this expertise you know, you save someone money they tell their friends about it. Are there other things that you have either seen, or recommend that advisors do to intentionally leverage expertise in this area to drive referrals?
Mary Beth:
I’m not sure again, because I’m giving the information to the advisors. What the advisors turn around to do with their clients I might hear anecdotally, I might not. But what I do when I’m doing presentations around the country, part of my deal with the sponsoring group is, “And if you have a question email me.” I am constantly back in touch with either the financial advisors, or the financial services sponsor, with questions that they’re getting from their clients.
And that helps two ways. One, I’m answering their client’s question, which gives them a high satisfaction and trustworthiness, and also my devil’s bargain is, I don’t charge for this advice, but I do write about it. So, I say, “Great question! I’m going to write about this in my blog so the broader financial services community is aware of it. Your only choice is I’ll quote you or I won’t.” So, it’s sort of a self-fulfilling prophesy. People send me a question, I answer their question, they’re happy, I’ve now written my blog for the next week, and more people read it and they say, “Oh. Look. Mary Beth’s answered this advisor’s question let me write to her with my question.” So it continues, and we all continue to learn.
I will give you an example that when congress changed the Social Security claiming rules at the end of 2015, and the first phases of it took effect six months later, which was very quick by Washington’s standards. And the information being disseminated by the Social Security Administration was very spotty, to say the least. I mean, wrong information going out right and left.
And I knew that, because my readers were writing to me saying, “I just went to Social Security and they told me x, y, z.” And I’d say, “Well, that’s wrong.” Or, “I just called Social Security and they told me this,” “No, that’s wrong.” Well, I wrote a column that said, “High level of misinformation going out from Social Security Administration.” Four months later, the Government Accountability Office, the government watchdog, wrote a white paper that said, “Social Security is giving bad advice.” And my reaction was, “Yeah if you read my column you would’ve known that four months ago.”
Steve:
Right.
Mary Beth:
And it’s all because of my readers because I have developed a two-way communication street with them. They ask me questions, I answer them, but perhaps more importantly they’re telling me what they hear, they’re my field research.
Julie:
Right. Yep. Makes sense.
Steve:
Interesting. In terms of taking the idea of this and becoming an expert in this area and using that as a way of differentiating yourself, what would you say is the one thing that advisors interested in that direction should put on their to-do list today?
Mary Beth:
There are excellent books and training programs. I can plug my own book that’s like the cliff notes of Social Security for advisors, but there’s a very good one that I call the bible of Social Security by Andy Landis called Social Security: The Inside Story, he just updated it this week for 2018 and that’s available on Amazon. Highly recommend that. There are some great training programs, some of the software companies like Social Security Analyzer, Social Security Timing, they all have their own training programs to teach advisors about the strategies, and how to use the software because I may do this in my head, but most advisors are better of using software. And then there are some in person training sessions from the NSSA, which is the National Social Security Association. There’s several different levels, you might want to start by reading a book, then you might want to take a training course, you want to take a deep dive, you might want to buy software. I would urge you if you’re going to invest in software ask for a free trial period you can usually do that for 14 days or so, to see what their support is because is can be confusing in the beginning.
Steve:
Sure. And we’ll put links to all of those in the show notes. You mentioned briefly your book tell us the title of it again? And where people can find it.
Mary Beth:
My book is called Maximizing Social Security Benefits. It’s updated for 2018 and it is available only for Investment News if you go to investmentnews.com/mbfebook that’s my three initials followed by ebook.
Julie:
Perfect.
Steve:
Excellent. Good. Mary Beth thank you so much for sharing your time and expertise with us.
Julie:
Yeah. Absolutely.
Steve:
If people want to find out more obviously they can read, and they should read your column in Investment News. Is there any other way that people can find you, or get a hold of you if they want to bring you out to talk to their clients?
Mary Beth:
Absolutely. They can always email me directly it’s my first two initials, last name MBFraklin@investmentnews.com.
Steve:
That sounds great. Mary Beth thanks so much for joining us this afternoon.
Mary Beth:
Thank you for inviting me, Steve and Julie this was terrific. Appreciate it.
Steve:
Hey folks. Steve again. Thanks for joining us on Becoming Referable. If you like what you’ve been hearing, please do us a favor and rate us on iTunes. It really helps. You can get all the links, shows notes and other tidbits from these episodes at BecomingReferable.com. You can also get our free report, Three Referral Myths That Limit Your Growth, and connect with our blogs and other resources.
So until next time, so long.