Although Social Security was never designed to sustain retirees’ living costs in its entirety, it has become a reliable source of income many Americans utilize to help bridge the gap between other sources of retirement income and total expenses, especially for women.
According to the Social Security Administration, women make up 56% of the 37.8 million beneficiaries aged 65 and older. Why? Women enjoy longer lifespans than men and have less saved for retirement due to the gender wage gap and years spent outside the workforce in caretaking roles. As a result, women between the ages of 60 and 64 are estimated to have $40K less in retirement savings than their male counterparts, making social security benefits a more integral part of their retirement plan.
Maximizing social security benefits, then, should be a retirement planning factor women take care not to overlook.
- Should I Continue Working to Make Up for Years Out of the Workforce?
Social security benefits are based on lifetime earnings and are calculated using your average indexed monthly earnings during the thirty-five year period when you earned the most income. However, since many women leave the workforce to raise their own children or help care for aging parents, they may not have had an opportunity to log a full thirty-five years or, if they did, inevitably earned less over that duration due to the gender wage gap (which still exists today).
One option women can exercise is to continue working past their initial projected retirement date in order to (a) inflate the income average that will be used to calculate their benefits or (b) avoid having zeros factored in for the number of years under 35 that they did not pay into the system.
Social security benefits are considered earned benefits, so if you don’t work for a full 35 years, and subsequently do not pay into the system for a full 35 years, you’ll have zeros factored into your calculation for the number of years you did not show an income. Since working full-time at an older age is not always feasible or desirable, some women choose to take on part-time work from home in order to avoid having zeros factored into their lifetime benefit calculation.
- Should I Delay Benefits?
When a woman chooses to claim her social security benefits will also affect her benefit amount. Individuals can elect to claim benefits as early as age 62, but will pay a price for claiming “early” in the form of a decreased lifetime benefit amount. For example, someone whose full retirement age is 67 would have his or her monthly benefit check reduced by 30% for life by starting benefits at age 62. However, claiming early could be beneficial for individuals in poor health who don’t anticipate a long retirement or for those who are not eligible to begin making IRA withdrawals but are still in need of income.
Full Retirement Age (FRA) is the age at which you qualify to begin receiving your full benefit amount. FRAs are not the same for everyone as they depend on the year you were born:
Source: Social Security Administration, www.ssa.gov. 3 July 2019.
However, delaying benefits will result in an increase, the amount which is determined both by (a) birth year and (b) how many years the benefits are delayed. Individuals should not put off filing for Social Security beyond age 70, though, as benefits do not continue to increase past this age. But those who wait until age 70 could enjoy benefits up to almost 33% higher than if they were claimed at FRA.
- Should I Claim My Spouse’s (or ex-Spouse’s) Benefits Instead of My Own?
In some cases, women could enjoy an increased benefit by claiming spousal benefits on behalf of their current or ex-spouse. Contrary to popular belief, taking a spousal benefit will not reduce or change the amount a current or ex-spouse will receive.
Women, then, can either choose to claim their own benefits, or spousal benefits that will provide 50% of the amount of the spouse’s social security benefit calculated at the spouse’s FRA. Much like when claiming their own benefit, women are not eligible to begin claiming spousal benefits until age 62. In order to receive benefits on behalf of an ex-spouse’s income, the couple must have been previously married for at least 10 consecutive years, the claiming spouse must not be remarried (or at least not have remarried until after age 60), and the marriage must have been terminated for at least 2 years before starting benefits.
For many women with fewer working years or significantly lower incomes, claiming the spousal benefit could be the most favorable way to optimize lifetime benefits.
At Harbor West, we know that maximizing Social Security benefits is only a small part of the entire retirement planning process. Deciding how to properly align social security benefits with your timeline of Required Minimum Distributions and investment income dividends can quickly become overwhelming. If you are in need of assistance building an optimized retirement income timeline, contact us today to speak with a member of our team to discuss how Harbor West can help you prepare for a financially secure future.
This information is provided for general purposes and is subject to change without notice. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness. Before acting on any of the information, please consult your Financial Advisor for individual financial advice based on your personal circumstances. Neither Harbor West nor Geneos Wealth Management, Inc. provide tax or legal advice. Harbor West is a division of NorthEast Community Bank. Securities and advisory Services offered through Geneos Wealth Management, Inc. FINRA/SIPC Investment Advisory and Financial Planning Services offered through Geneos Wealth Management, Inc. Investments are not FDIC Insured. Investments are not deposits of the financial institution and are not guaranteed by the financial institution. Investments are subject to risks including loss of principal.