The Power of Software and Navigating an Ever-Changing Retirement Landscape with Mary Beth Franklin

Jack Sharry: Hello, everyone. Welcome to WealthTech on Deck. This is the podcast where we talk with industry leaders about the future of digital and human advice, as we all work to enable advisors and their clients to enjoy improved financial outcomes. Today we’re talking with Mary Beth Franklin. Mary Beth is a very popular columnist and contributing editor at InvestmentNews, specializing in Social Security, Medicare, and retirement income. Mary Beth, good to have you on the show. Thanks for joining us today.

Mary Beth Franklin: Thanks, Jack. I always love to chat with you about these really important topics.

Jack Sharry: Great, great. Looking forward to our discussion. So Mary Beth, let’s start by having you give us a highlight story of your career. You have been a financial journalist for some time, please share with our audience your background leading up to our discussion today.

Mary Beth Franklin: Well, once upon a time back in the 80s, I was very young, notice the emphasis on young, reporter on Capitol Hill for United Press International. That meant I was covering all the major tax legislation and more importantly, Social Security reform legislation during the Reagan administration. That laid the basis for the rest of my career as a financial journalist, always writing about money, whether it was macroeconomics covering the budget and tax reform and Social Security for UPI, or consumer information for Kiplinger’s Personal Finance magazine, where I spent 13 years. And in between, I had a syndicated newspaper column for and about older people that ran in about 200 newspapers nationwide. I joined InvestmentNews as a contributing editor back around 2011, I think, so 10 years with them as well. My focus now is helping financial advisors give the best advice possible to their clients who are near or in retirement.

Jack Sharry: And you do it very well. We’re avid followers of your column. In fact, one of our colleagues, Alyson, you’re her heroine. So…

Mary Beth Franklin: Oh, I always like girl power.

Jack Sharry: You definitely have some girl power going on there. See, she’s, she’s great. She’s a great contributor, developing her own expertise around, around Social Security. So it’s… she’s following in your footsteps. So as a columnist for InvestmentNews, I know you’re always looking to add value to advisors, as they seek to better serve their clients around retirement income issues. So keeping in mind our audience is largely comprised of executives from wealth management firms, asset managers, insurance and annuity companies, and fintech/wealth tech firms. Please share with us what you see as some of the biggest challenges advisors face. And then some of the biggest opportunities and what these various firms need to keep in mind as they develop capabilities to help advisors help their clients.

Mary Beth Franklin: Well, for the last 10 years, I have really focused on Social Security claiming strategies. Because in the beginning, it was something that many advisors were simply not aware of. The theory back then was Social Security, no big deal. It’s greens fees for most of my clients. When people started to realize the net present value of a Social Security benefit, particularly in this zero interest rate environment where we have lived for the last decade and will likely continue to experience these near record low interest rates for at least a few more years, the thought of being able to delay claiming my Social Security benefits, and earning 8% per year, between my full retirement age and age 70 is huge. And as that concept took hold in the financial advisor community, then something else happened, Congress changed the rules. And I have spent the last several years since those changes went into effect in 2016, basically, helping advisors unlearn the rules that they thought they could use, and give them strategies that they might use for a small but shrinking group of their retired clients. Basically, people who were born before 1954 still have some claiming strategies that other people don’t have. And explaining that you always have to think of a surviving spouse; that retirement claiming strategies and survivor claiming strategies are two different pots of money, and you still may be able to give great value to your clients, looking ahead to their lifetime Social Security benefits.

Jack Sharry: Great. And I know you’ve written a book on this topic, and just for our audience, in case they are interested in picking it up, what is the name of the book?

Mary Beth Franklin: It’s called Maximizing Your Social Security Retirement Benefits, and it’s available at InvestmentNews.

Jack Sharry: Great, great. And I know you provide advice your column as well as in the book. And I also know you work with many software providers around claiming strategies and retirement income at large strategies. Talk a little bit about what you see as working presently, and what you’d like to see improved or enhanced in terms of the kind of delivery since the stuff can get complicated and it’s useful, often, to have some software that helps you not only determine what to do with Social Security, but how do we incorporate it into a larger retirement income picture?

Mary Beth Franklin: Oh, absolutely, Jack. Social Security is complicated. There’s about 2700 rules that govern Social Security benefits. And advisors can’t be expected to know all of these. I have a bit of an edge in that’s primarily what I do. I’m not managing people’s money. I’m not creating portfolios. I focus on Social Security, Medicare, retirement income distributions. So I like to give advisors these red flags to be aware of, “Oh, this might be in… something important.” But in the hands on creating retirement income plan, the majority of advisors can really benefit from some sort of software claiming tool. And as I mentioned at the top of this podcast, a lot of the creative claiming strategies have gone away. That does not mean Social Security is not still a critical piece of the retirement income puzzle. But now we’re seeing more emphasis on things like how will my taxable income and retirement affect how much I’ll be paying for Medicare premiums in the future? And what can I do now to start either drawing down some of those qualified retirement assets before I hit my required minimum distribution age, at which point those distributions may be locked in? And how should I perhaps try to transfer some of that qualified money into a tax free column maybe through a Roth IRA conversion? Or should I be thinking of some sort of permanent life insurance that I can draw down tax free, either through a distribution or a loan? Or should I think about a qualified charitable distribution? All ways of taking money that is currently in a taxable column, and shifting it to a tax free column that is going to affect my income taxes and my Medicare premiums, all of that’s complicated. And software can make that decision a whole lot easier.

Jack Sharry: So let me make it even more complicated, if I may, all stuff you’re familiar with. And we’ve talked about this, but four times as many people retired in 2020, versus 2019. That’s from a Pew Research study, recent study. McKinsey did another study, different study, and found that a 356% increase in money in motion, basically, people are retiring, just anecdotally. And I know you talk to advisors often, as do I. I was speaking, I’ve spoken with a number of advisors recently, and they are, frankly, overwhelmed by the volume of, of inquiries and guidance being sought around, “What do I do now that I’ve decided to retire?” People often wait to the last minute to make those decisions, and you might comment on how important it is to start earlier than that, but that… I’ll leave that to you. But the point of all that is that people are retiring, this big baby boomer wave you and I’ve been writing about and talking about for a long time is happening, it’s underway. And the average age baby boomer is now 65 and median, but what it’s… it’s it’s moving toward that retirement income phase. So if you could wave a magic wand talking to FinTech providers, wealth tech providers, firms like LifeYield, what’s missing? What do you… what do we need more of? What would you advise us, those of us who are trying to enable the advisor to, to do a better job with their clients, any suggestions that you’d like to see in terms of where where we’re headed, and that’s toward retirement income?

Mary Beth Franklin: Well, certainly to make the software as easy to use as possible. There’s a lot of great software programs out there, out there, but not everybody wants to get so far into the weeds. I think you want an advisor to be able to incorporate any sort of Social Security claiming strategy, Medicare decision, distributions from plans, into their existing financial planning software. I know they don’t want to rekey in a lot of numbers. They want to be able to integrate with what their existing program is, and I think they want ongoing training and support. You know, if you’re in a primarily retirement income practice, you may be dealing with this on a day to day basis. If your clientele is currently younger, but face it, everybody’s getting older, you may not be as familiar with these procedures, and you’re going to need some hand holding going along. You had mentioned the wave of retirements, we knew it was coming from a demographic standpoint, the pandemic has accelerated that. And all sorts of things are happening as a result of the COVID 19 pandemic. You have some people who lost their job because of downsizing during the pandemic, maybe having to retire sooner than they thought. You have other people who may still have a job, but they have health concerns, and they are afraid to go back to work. That’s another decision there that may also play into a Medicare decision. You have other people who maybe had thought about retiring, but hey, they’re working from now… home, and they realize the thing they hated about their job was the commute. The commute is gone, maybe I’ll work another couple years. So, as you say, this money in motion, and it’s going in all different directions. So it’s not like a financial advisor has a set template that he can apply to all his or her near retirees. They’re going in different directions. So the key is personalization. How can I take my client’s situation, all these questions are arising, and I think you’ve found in your, your latest LifeYield study, that the first question that these advisors are getting from their clients is, “When should I claim Social Security?” It is the ultimate gateway question into the broader retirement income decision.

Jack Sharry: Yeah, what we found, we have about 90,000 advisors that use our Social Security software tool. And frankly, we did it because one of our clients asked, this is 10 years ago, we… it was part of our larger capability and we sort of carved it out because they… it was a request from a client, Franklin Templeton, to be exact. And what we found out is that it was the… and we found this also true at Merrill… Merrill, where there’s… we’re told by the people, some of the leadership there, that it’s their most popular tool, by far. Used by 98% of advisors, the Simple Social Security tool at Merrill, it’s called. Social Security Analyzer, our name is white labeled, so we don’t see it there. But it’s our tool. And what’s interesting at Franklin, where about 10,000 advisors use it each year. And Merrill were there are 14,000or so, whatever the number is of late, use it on a regular basis. They keep reporting back to us that it’s the first question clients ask when they try to determine what to do about retirement, like, “When should I file?” and “How do I file?” and all the stuff that you advise on. The next question is okay, now that I got that figured out, okay, now, what do we do? And often there’s a rollover involved, so that becomes the next question. So what do we do about that? And how do we incorporate that? Do we draw income? Do we just do a rollover? Where do we draw income from above and beyond Social Security? That becomes the next question. And that leads to the, the ultimate question, something that you address, and that just to underscore the complexity, given all the accounts and products and Social Security and other income sources I have to contend with, or understand, what’s the optimal sequence of withdrawal? So you might want to comment on that just because you provide advice around that, we provide software around all the above. But what do you hear from advisors? What are their concerns around these issues? What are they trying to solve for? What are they trying to do in terms of helping their clients?

Mary Beth Franklin: Well, first of all, because my… part of my business is speaking either at financial professional events, or for their client events, they all report to me that offering a seminar on Social Security and Medicare is one of the best prospecting tools that a financial advisor has. Often you’re inviting your clients and saying to your clients, “Hey, bring a friend if you want.” The reason it’s so powerful is you’re not selling anything. This is an earned benefit. All I’m giving you is information that may help you make a better decision based on your personal situation. And often clients or prospects will respond, “Wow, that was so helpful. I wonder what this person can tell me about the rest of my retirement decisions?” So that’s why… and I say to people, “Here are the various rules and timeframes and strategies.” One solution does not fit all. It’s a very personalized decision, but I want you to have the information. I don’t care when you claim your benefits. That’s your choice. But let’s make it an informed decision. And it’s such a great opportunity to have these broader discussions. I think, also, advisors may have grown up with these rule of thumbs that maybe don’t work anymore. We all have heard about the 4% rule, that you should withdraw 4% of your nest egg initially, increase that amount for inflation each year, and, with luck, that should last 30 years. Well, it might. But that was also done in a time when bond yields were much higher. A basic 60/40 portfolio is not going to throw off the same kind of income now that it did 30 years ago. So what’s a financial advisor to do in this low interest rate environment? Do they have to look at other tools, like maybe taking a portion of that money and buying some sort of annuity? I think, Jack, you were the one who pointed out a fascinating piece of information to me that, we talk about the traditional three legged stool of retirement security: pensions, personal savings, Social Security. You showed me a stat, I think, that fewer than, I think it’s 7%, of Americans can now rely on all three legs of those… that stool, because pensions are basically history, unless you’re perhaps employed by a state, local, or federal government. So if that leg is gone, and Social Security is a little wobbly, you know, we do have to address the long term financing of that and personal savings are often inadequate. Well, we’ve gone from this three legged stool to essentially a pogo stick, not a great way to create retirement income. So we need a new model. And I often think of that new model as being a retirement income pyramid. The basis, the broad basis of that pyramid, for most people is Social Security. The next layer for most people are their retirement savings, you know, IRA, 401k, whatever. The next layer for a lot of people is continued employment in some form. Because if you have money coming in, that’s money you don’t have to tap yet. For a lot of people going forward, the next layer may be home equity, because you may have more money tied up in your house than you have in your 401k. How do you tap that equity? On top of that is everything else. Maybe an inheritance, maybe you sold a business, you have other assets? Now, now do I figure out how and when to tap each of those layers to fit my lifestyle in the most tax efficient manner. That’s where the software comes in.

Jack Sharry: So let me add to the complexity, as if that wasn’t complex enough, beautifully stated. But you’re just acknowledging what’s the challenge. And I like the pyramid concept as a way to understand what the possibilities and opportunities are. But we also learned yesterday, President Biden talking about an infrastructure bill that will be largely funded through increased taxes. And so we… none of us know what that will turn out to be or if it will turn out, we’ll see. But that adds another layer of complexity and something I’m going to… I was just talking to my colleague, Paul Samuelson, we’re going to be putting together something on the topic of taxes in light of the likelihood that taxes are going to change at the least and go up, in all likelihood. So what do you do about that? Because taxes, as we found in our research, and heard this from others, taxes of the single biggest expense people incur in their retirement, or over the course of their investing lives on through retirement. So you have more people retiring, you have a wobbly Social Security, to use your term, and understandable, although I do not see that going away anytime soon, for at least the current crop of folks moving toward retirement. I’d love your comment on that in a moment. But what we have is we have the taxes, we have these various sources, potential sources of income, between largely not having a pension, but having savings and having retirement plans, what have you, to draw from, and increasing importance of annuities. Because I think people like guarantees as part of that. And then the other issues you need to be mindful of is, how do I keep my costs low, investment costs low? How do I make sure I’ve managed my risk consistent with my comfort level? And then the big kahuna, taxes? And then how do I wrap that all up with my Social Security distribution strategy as part of an income sourcing? So I just, sorry to make it more complicated, but those are all the realities we have to consider. Any thoughts that you can provide to advisors and to firms trying to serve advisors? How do we pull all that together? Where do you see it going? Because we don’t, it’s not gonna get any easier. If anything, it’s gonna get more complex. So, your thoughts? And I loved your comment, by the way, in terms of starting with Social Security at a seminar, or what have you, to expose that it’s something you need to be mindful of. But how do you play it out? If you’re an advisor or a firm seeking to serve advisors? What do we need to do to better serve advisors and ultimately, their clients?

Mary Beth Franklin: I think to highlight that we are in a changing environment We don’t know what’s going to happen on the tax front. But we can start creating Plan B scenarios for clients. And clients should not be expected to be experts in this. That’s why they’re relying on their financial advisor, who is going to pivot as we get new information. I think this is a great argument of why you should have professional financial advice in retirement. And what’s really interesting is, the majority of Americans, the 50% of working Americans who have access to a retirement savings plan at work, the majority of them are probably getting their advice at work, through their 401k plan provider. It’s almost like getting your health insurance at work. It’s just part of the work scenario. And suddenly you retire, and it’s, “What am I going to do about my health care? What am I going to do about taking those retirement savings and turning them into income?” This is probably not where you want to go it alone. This is where you may want to hire a financial advisor, if only for a pre retirement checklist. Some people may be able to go a robo-advisor sort of approach, “I don’t need a lot of hands on, I can automate this.” Other people have a more complicated situation, “And I want ongoing advice.” But I think regardless of how you get the advice, we need to raise public awareness that you need this advice. And I think also emphasizing the importance of acting as a fiduciary in the best interest of the client needs to seep into the public awareness, that this stuff is complicated. You need help, we can provide it in the way that’s going to suit you. And I think there’s a lot of public distrust out there. What are you getting out of this? Is this a scam? You know, is it commission based, whatever. Transparency is the key. This is the service I’m offering. This is how we’re paid. This is how much it’s going to cost you. And more importantly, what is my value proposition in exchange for what you’re going to pay me?

Jack Sharry: And let me, at the risk of piling on to the complexity discussion, but it’s the reality. Earlier in our podcast series, we had Ed Murphy, who is the CEO of Empower. Empower has bought up a bunch of record keepers, and has an array of services that they offer as, as a record keeper, including Social Security optimization services and income optimization services. And they recently bought Personal Capital, which has a more robust suite of advice tools. I think Personal Capital sometimes is mistaken for a robo. It’s much more than that. It’s basically very competitive advice offering, just instead of delivered out of an office, it’s delivered online and, and over the phone. They’re clearly moving in that direction. I know that’s what Morgan Stanley is doing on their retirement side, Edelman Financial Engines is moving in that direction. And we’re in conversations with many firms across the industry on the retirement plan side, that are looking to offer these services. So for the advisor, and Empower works with advisors so that you can… they make it available directly or through advisors, but it seems like the industry is moving toward providing advice in a variety of ways. And you may want to comment, why it’s incumbent upon the advisors we know and love, how they really need to kind of bone up on what the possibilities are, embracing software where appropriate to help in the decision making process and also in timesaving process of working with clients. But maybe comment a little bit about this emerging retirement plan side impacting the advisors that are… make up so much of your reader base.

Mary Beth Franklin: I think it’s absolutely true. And a lot of this goes back to fallout from the pandemic. You have all these people working from home, including financial advisors. The financial planning industry was slow to embrace technology, I think. And suddenly they had to, and many of them are finding, wow, I could never get my married couple clients to agree to meet at the same time because they were so busy. And now I have them all on the same Zoom meeting screen at once. A lot of these things I think are going to be permanent and going to be very helpful as far as communication tools. The other thing that the pandemic spotlighted, I think, was the many holes in our retirement safety net. How many people didn’t have access to a retirement plan at work. How many people have a great need for basic financial literacy instruction. So you’re seeing more emphasis on broader financial wellness. The employer based benefits, pretty much started out as health insurance, morphed into retirement savings. But those were long term events. And now there is demand for, “I need help with debt management,” “I need help with creating an emergency account that’s coming directly out of my paycheck,” “I need help with student loan repayment or saving for my kid’s future college expenses.” So there is this movement towards this broader financial wellness demand. And I think a lot of plan providers are trying to offer this. The hard part is for them to figure out, how do you charge for it? If, basically, your money was based on assets under management or the size of the plan, and suddenly you have all these add ons, I think the industry has to figure out what the value is, and how do I get paid for it? And then for those advisors who are focused more on the distribution things, how do they transfer for clients that have been taken care of at the workplace plan level, into an individual distribution plan. So I think a lot of this is going to evolve. We’re seeing this bigger emphasis on basic financial literacy. And I think if plan providers and individual advisors… that’s where a lot of their community efforts and pro bono work can go. Because you’re talking the next generation of clients. It’s a very long term play, but everyone’s gonna benefit from it.

Jack Sharry: Great. We’re gonna wind up here, I’m going to ask you in a moment about the three, three key takeaways for our discussion today. But I just want to add, just based on what you just said, we’re working with about 15 different firms presently on what you just described, is that complexity on both the retirement plan side and on the traditional retail brokerage or wealth management world, where there’s a significant amount of resources, capital being expended to connect the dots of data and planning and proposal and ongoing management of multiple accounts, products, and what have you, leading to household level management of the full portfolio, on out to income sourcing across multiple sources of income, like retirement plans, and Social Security, and taxable assets, annuities, what have you. So, the good news is, particularly for advisor audience, help is on the way and for our wealthtech listeners, you know, you’re working on it, and you’re not alone. It’s happening. And it’s very encouraging. So that, just as an editorial comment, at least an observation since we work up close and personal with these kinds of folks that are doing this sort of stuff. But for our discussion today, which has been terrific, Mary Beth, I appreciate it. What are three key takeaways you’d want to have our audience, and it’s a mixed audience of with advisors, as well as wealth tech professionals… What are your three takeaways or advice you’d like to offer to our audience?

Mary Beth Franklin: Well, I think in this era of disappearing pensions, record low interest rates, one of the big concerns for clients is guaranteed income. A piece of that is Social Security, having an advisor help a client optimize that decision is key. And the second part of that is, maybe you need to consider incorporating an annuity into that retirement income stream. And that’s a new area for a lot of advisors. Just because you hated annuities in the past doesn’t mean you need to hate them in the future, because the products have changed, and the needs have changed. So that’s on the income side. The other important part is, what are the biggest expenses in retirement? You mentioned, taxes are one. The other is medical expenses. Medical expenses are things that a lot of advisors have not incorporated into their plan because it was too darn hard. How do you figure it out? Software is getting better in personalizing those costs based on your health condition, your age, and where you live. It’s not a perfect solution, but it gives you some guidelines of what to factor into that, because people grew up with a couple myths, that you’re going to put as much money as possible into your qualified retirement plans to lower today’s taxes and your taxes were going to go down in retirement. Well, that might not be true going forward. And advisors and software providers need to understand that this is a very fluid situation. And the best thing they can do is stay on top of these changing environments, and pivot where they can and help the clients make the best decision for them. It just means it’s a full employment opportunity for financial advisors, because this is not going to get simpler, it’s going to get more complicated, and your clients need your help.

Jack Sharry: Great. One last question before we sign off. What’s one thing about Mary Beth Franklin that people… that you do when you’re not in your, your day job, but what are you passionate about? Or what are you excited about in your, the rest of your life?

Mary Beth Franklin: Well, I consider myself a late bloomer, in that when I turned 40, which is now about 20 years ago, I decided it was going to be the “me decade,” I’d spent my thirst… 30s raising children. And when I turned 40, I said I want to learn to play the piano, downhill ski, and rollerblade. And I learned all three things. And this was the first season in 25 years that I didn’t ski because of the pandemic, which means I’m going to ski twice as much next year.

Jack Sharry: That’s terrific, a renaissance woman for sure. So this has been terrific, Mary Beth, really appreciate you taking the time and sharing your considered point of view with our audience and I look forward to our next discussion. Thanks so much.

Mary Beth Franklin: Thanks, Jack. Really appreciate it.