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 Administration.1 Women also have a greater average life expectancy2, meaning they likely will depend on one income for longer, and may face more expenses like long-term care over their lifetimes.
Additionally, women historically have made less than men over their careers 3, which means their Social Security benefits also are lower: Women receive benefits equal to 78% of the benefits their male counterparts receive.4
“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 advisors can direct them to a number of claiming strategies to maximize the amount they 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%.
Help women decide if delaying is right for them by considering factors like family longevity, how much retirement income they need and what other sources of income they have. If a client has enough income from pensions or retirement accounts to cover her expenses early in retirement, she may want to delay claiming her 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.5 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 your client 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 clients’ work histories, you may want to suggest that they delay retirement, working longer to improve their average earnings and thus increasing their benefits. Working longer also allows clients to continue building retirement savings through tax-advantaged retirement savings vehicles like 401(k)s and IRAs.
Claiming spousal benefits. If a client has worked under Social Security and is eligible for her own benefit, she may receive that amount first. If her spouse was the higher earner, she may also be eligible to receive the difference between her benefit and her spouse’s. For example, say your client is full retirement age and eligible for a $750 monthly benefit, while her spouse is eligible for a $2,000 benefit. Her total benefit cannot exceed 50% of her spouse’s benefit, or $1,000. In this case, the client may receive her own $750 benefit plus $250 based on her 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 the client couldn’t claim benefits of her own, she would still be eligible to receive $1,000 a month based on her spouse’s earnings.
Consider, too, that if a client is divorced but was married for 10 years or more, she may still be able to make a claim on her former spouse’s benefit.
Planning as a couple. Eckert stresses the importance of working with both members of a couple, 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,” she says.
While discussing potential life expectancy with clients 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.
Advisors can take advantage of tools like Nationwide’s Social Security 360 Analyzer® to give clients a comprehensive idea of which claiming strategies will work best for their situations.
1. https://www.ssa.gov/people/women/#&a0=0
2. https://www.ssa.gov/planners/lifeexpectancy.html
3. https://www.whitehouse.gov/sites/default/files/docs/equal_pay_issue_brief_final.pdf
4. https://www.ssa.gov/policy/docs/statcomps/supplement/2015/index.html
5. http://www.pewresearch.org/fact-tank/2015/03/10/women-still-bear-heavier-load-than-men-balancing-work-family/