Women and Social Security
Why Social Security benefits are a vital tool for women’s retirement planning.
Social Security benefits are an important part of retirement income. This is especially true for women, who tend to rely on these benefits more than men do.
In fact, 57% of all Social Security beneficiaries over the age of 62 are women, and that that number jumps to 68% for beneficiaries 85 and older, according to the Social Security
“Women tend to face challenges that men don’t,” says Roberta Eckert, vice president of the Nationwide Retirement Institute. “Smaller benefits, a longer life and greater expenses make for a perfect storm that highlights why Social Security is so important for women.”
Helping women make the most of their benefits
Every woman’s financial situation is different, but we can direct you to a number of claiming strategies to maximize the amount you would receive in Social Security benefits.
Delaying benefits. Individuals can begin taking reduced Social Security benefits at age 62, and full benefits when they reach their full retirement age. However, it pays to delay taking benefits as long as possible. For clients born after 1943, every year after age 62 that they delay taking benefits (until age 70) increases their benefit by 8%.
Factors to consider may incldue family longevity, how much retirement income you need and what other sources of income you have. If you have enough income from pensions or retirement accounts to cover your expenses early in retirement, you may want to delay claiming your benefit.
Continuing work. As many as 27% of women say they have left a job in order to care for a child or family member, according to a Pew Research study. This time off can have a significant impact on the Social Security benefits a woman will eventually receive.
That’s because Social Security benefits are calculated based on the average monthly earnings for the 35 working years in which you earned the most. Time spent out of the workforce may mean the formula takes into account years with zero earnings, which can bring down the average substantially.
As you consider your work history, it might be a good idea to delay retirement, and work longer to improve your average earnings, and thus, increase your benefits. Working longer also allows you to continue building retirement savings through tax-advantaged retirement savings vehicles like 401(k)s and IRAs.
Claiming spousal benefits. If you have worked under Social Security and are eligible for your own benefit, you may receive that amount first. If your spouse was the higher earner, you may also be eligible to receive the difference between your benefit and your spouse’s. For example, if you are full retirement age and eligible for a $750 monthly benefit, while your spouse is eligible for a $2,000 benefit, your total benefit cannot exceed 50% of your spouse’s benefit, or $1,000.
In this case, you may receive your own $750 benefit plus $250 based on your spouse’s income history to reach the 50% threshold.
Individuals may be entitled to receive spousal benefits even if they’ve never worked under Social Security. In the scenario above, if you couldn’t claim benefits of your own, you would still be eligible to receive $1,000 a month based on your spouse’s earnings.
Divorce. If you are divorced but were married for 10 years or more, you may still be able to make a claim on your former spouse’s benefit.
Planning as a couple. It is important to work through the issues with your spouse, especially when it comes to planning for survivor benefits. “With survivor benefits, you are basically stepping into your spouse’s shoes and taking over their Social Security check,” accroding to Ms. Eckert.
While discussing potential life expectancy can be delicate, the topic is worth raising, particularly if one spouse is substantially older than the other. If that spouse is also the higher earner, he or she may want to delay claiming benefits as long as possible to provide the highest future spousal benefit.
The importance of a plan. As with much financial planning, clients in their 50s and beyond would be best advised to develop their Social Security strategy sooner rather than later. “It’s best to have a plan in place before life takes you by surprise and you have to work from a defensive position,” says Eckert.
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As a reminder, this Blog Post is for informational purposes only and is not intended as legal or tax advice.