“Social Security: It’s a Women’s Issue”
Author: Ash Ahluwalia
It’s true: everyone should be taking steps to maximize their social security benefits. The findings of the Center for Retirement Research at Boston College study estimating that more than $10 Billion in benefits are left on the table each year make this more clear than ever. And while this raises big questions about what can be done to get benefits into the hands of today’s retirees, the concern about unclaimed benefits is even greater for women—many of whom could use an extra boost in Social Security income.
If you are a woman approaching retirement—whether you are single, married, divorced or widowed—it’s critical that you review every option to be sure you’re getting the most you can from Social Security. It may be the most important financial decision you make in planning for retirement.
Why is maximizing Social Security benefits a women’s issue? The statistics speak for themselves:
- Women earn less. Women working full-time continue to earn just 77% of what their male counterparts earn1—a number that corresponds to an equal reduction in individual Social Security benefits.
- Women have lower Social Security benefits. On average, the Social Security benefit for women 65 and older is just over $13,000 per year, compared to $17,000 for men of the same age.2
- Women rely more on Social Security. 30% of women 65 and older rely on Social Security for more than 90% of their income, compared to 23% of men of the same age. For unmarried women, including those who are widowed, divorced, or have never married, this number jumps to 36%.
- Women leave the workforce more often to serve as caretakers. As many as 75% of family caregivers are women3, making this group particularly susceptible to loss of income and lower personal benefits from Social Security.
- Women live longer. A longer life expectancy requires an increase in retirement income to support additional costs for housing, medical, and long-term care expenses.
While there’s no changing these numbers in the near term, the good news is that there are specific strategies that can help you boost your Social Security income considerably over the long term. Yet a recent study from Prudential4 found that only 33% of women seek professional financial advice—including advice for maximizing Social Security benefits. Isn’t it time to change that fact and bring home the highest possible income during what may be the most financially challenging years of your life?
While the ideal strategy is as individual as every woman, here are a few tips to get started on a path to a more comfortable retirement:
Single Women: It’s all about longevity
If you’re single, outliving your money may be your biggest retirement fear—especially if you’ve never been married and must rely on your own savings and Social Security benefits. Despite the common misconception that living expenses will decrease with age, expenses generally rise as you get older due to the cost for long-term care and medical care associated with longevity, not to mention the rising cost of living that comes with inevitable inflation. To help combat these challenges, consider these options:
• Delay distribution to boost benefits. While the majority of women claim benefits at the earliest possible date at age 62, waiting to file until age 70 can increase your annual benefits by as much as 76%. This jump includes an 8% annual increase, from ages 66-70, provided by Delayed Retirement Credits (DRCs). Benefits may also increase due to annual cost-of-living adjustments (COLA).
• Turn to other savings first. Delay claiming Social Security benefits by drawing down on your other investments, such as a 401(k) or IRA. Unless these other funds are earning more than an 8% guaranteed annual return—the equivalent of the DRC—there’s no reason to file before your benefits hit their maximum at age 70.
Married Women: Coordination is key
When it comes to money, men have a tendency to focus on lump-sum payouts, whereas women focus more heavily on cash flow. This difference can prove to be critical when looking at Social Security benefits, since the goal is to ensure the highest possible monthly income throughout retirement. If you’re married, distribution timing is still important, but you can also gain significant additional income from your spouse’s Social Security benefits if you carefully coordinate your claims using these combined strategies:
• Restrict benefits for the higher earning spouse. Using a strategy called “File and Restrict,” both you and your spouse are able to receive a benefit while one benefit amount continues to grow due to DRCs. Using this strategy, you file for and receive your own benefit, while your spouse (again, assuming he has the higher benefit) restricts his benefit to a spousal benefit amount and defers his own benefit to age 70. This allows him to take advantage of the DRCs as well as any increases due to COLA on the higher benefit amount. However, as a result of the bi-partisan budget act of 2015, this filing strategy is now only available to individuals who were at least 62 or older as of January 1, 2016.
• Take advantage of survivor benefits. If your spouse defers his benefit from age 66 to 70, not only is his benefit amount increased by 32% plus COLA, but his higher total benefit amount also represents your “survivor benefit” should he predecease you. Your survivor benefit is equal to 100% of his now higher benefit. If you pre-decease your husband, he will continue to receive his higher benefit amount throughout retirement.
Divorced and Widowed Women: The secret is in the sequence
If you’re divorced, you typically can’t count on the financial resources of a spouse. However, when it comes to Social Security benefits, you may have more options than you think:
• Claim spousal benefits on an ex-spouse’s earnings. If you’re divorced but were married for at least 10 years and divorced for at least two years, you may be eligible to claim spousal benefits on your ex’s earnings—but only if you aren’t remarried. If you were married again, but your later marriage ended in the divorce or death of your new husband, you have the option of claiming spousal benefits from the highest earning ex. (Of course, you can only claim benefits on the earnings of one former spouse at a time!). Also, as a result of the bi-partisan budget act of 2015, this filing strategy is now only available to individuals who were at least 62 or older as of January 1, 2016.
• Re-married after 60? Collect survivor benefits. If you remarry after age 60 and your ex-husband dies, you have the option to claim survivor benefits on the earnings of your ex-husband, equal to 100% of his benefit amount, even though you remarried!
Women Need to Take Charge In Planning for Benefits
If you were out of the workforce for any period of time—to stay at home, assist a family member as a caregiver, or for any other reason—achieving an employment record of at least 10 years (40 quarters) is vital to be eligible for any individual benefits. It can sometimes be well worth the effort to take a full- or part-time job to complete the 10-year minimum. Also, note that even if you begin to collect benefits at 66, you may still be able to increase your benefit amount because it is based on the highest 35 years of averaged indexed monthly earnings, even if those earnings occur while you are receiving benefits.
Regardless of your marital status, as a woman, you likely face a longer lifespan and lower earnings than a man—both of which make maximizing your Social Security benefits particularly important. If you have not yet filed a claim for benefits, consider these strategies as a starting point, and talk to a qualified Social Security advisor to be sure you’re doing all you can to ensure a more comfortable and secure retirement.
Ash is the head of the Social Security planning division at OneTeam Financial. He is the former president and founder of National Social Security Partners, LLC (NSSP). He is a Certified Financial Planner® (CFP®), holds an MBA from Wharton Business School, a National Social Security Advisor (NSSA) designation and a Certified Social Security Claiming Strategist (CSSCS) designation. For all of his efforts, expertise and leadership in Social Security planning, he was recognized with the “National Social Security Advisor of the Year” award in 2016 from the National Social Security Association. He can be contacted at email@example.com or, (973) 202-1212
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