Women’s Guide to Social Security

Given women’s longer lives and lower earnings, it’s more important than ever to understand how the complex rules of Social Security benefits apply to you.

Most Americans have a pretty low opinion of government programs, according to the Pew Research Center, with one notable exception: Social Security. A YouGov poll shows 89% of people who are currently receiving Social Security benefits have a favorable view of the program.

That's not surprising. People like getting paid every month, particularly when they're no longer earning a paycheck. And Social Security deserves a lot of credit for keeping older people out of poverty. Thanks to Social Security, over fifteen (15) million people are living above the poverty line in retirement, according to the Center on Budget and Policy Priorities .

But Social Security was never meant to be all your retirement income. It's supposed to work in concert with your other assets, like a 401(k) plan, an individual retirement account (IRA) or other taxable savings. For the average person, the Social Security Administration (SSA) notes that Social Security replaces just 40% of their pre-retirement income, and even less for people in higher income brackets. Still, it’s an important source of retirement income, so it needs to be managed well.

That’s especially important for women, given their longer lives and lower earnings. Unfortunately, Social Security is a complicated program with a lot of rules that many people don’t know about. Knowing how to maximize this benefit can really improve your retirement quality of life.

How does Social Security work?

Despite the popularity of Social Security, the program can be complicated. It has so many twists that it’s hard for the average person to get their arms around it.

In a nutshell, Social Security replaces a portion of your pre-retirement income. The amount of your benefit depends on your lifetime earnings. To qualify for Social Security, you must have at least 40 “credits,” which you earn by working at least 10 years. Your benefit is based on your 35 highest-earning years.

That’s where things get complicated. Despite the many gains women have made in education and the workplace, the burden of childrearing and elder care still primarily falls on them. As a result, they are more likely to have gaps in their work history. According to the Brookings Institution , motherhood reduces women’s Social Security benefits by 16% for the first child and then an additional 2% for each subsequent child. Women’s average Social Security benefits are 80% that of men , the SSA says.

Social Security should fit into your overall financial plan.

You are first eligible to tap Social Security when you turn 62. But is that a good idea? In many cases, it's not. You will be penalized for each month that you take the benefit before your full retirement age , which for people born in 1960 and later is 67 years old. For example, if you're eligible for a monthly benefit of $1,000 at full retirement age, at 62 you would receive only $700 .

On the other hand, if you choose to wait beyond full retirement age, you can receive an 8% bonus each year. So again, if you are due to receive $1,000 in benefits at full retirement age, by delaying until 70, you would be eligible for $1,240 (plus any cost-of-living adjustments, or COLA s, that Social Security recipients receive in those years). There are not a lot of investments out there with guaranteed 8% annual returns.

While in many cases I advise my clients to wait as long as they can to start tapping their Social Security, it's important to look at how the program fits in with your overall fiancial plan. For people with stable jobs, I advise they continue working as long as they can so they can continue adding to their retirement savings and delay taking Social Security.

Even if you decide to retire before your full retirement age, it might make sense for you to use the assets in your 401(k) plans, IRAs and brokerage accounts while letting your Social Security benefit build up. Again, that 8% growth each year is hard to beat elsewhere.

But if you don't have a lot of other assets, or you have been forced from the workforce due to an illness or a job loss, you may need to tap Social Security to make ends meet.

Coordinate Social Security with your spouse.

While Social Security is an individual benefit, you can maximize how much money you get by working together with your spouse.

For example, if one spouse significantly outearned the other during their careers, I often recommend that couples start the lower-earning spouse's benefit at 62, but wait until 70 to tap the higher-earning spouse's Social Security.

In heterosexual couples, women tend to be the lower-earning spouse (but not always), and they tend to be younger than their husbands. There's a high likelihood that they'll outlive their spouses. By maximizing the higher Social Security check, it's likely that women will “step up” to that higher benefit when their spouse dies.

You can also claim survivor benefits if you became a widow before reaching full retirement age. At age 60, you could claim a survivor benefit if your late spouse worked long enough to qualify for Social Security (remember the 40 credits it takes to be eligible). If you wait until your full retirement age, you can receive the full amount your late spouse would have received.

Gray divorce scrambles Social Security.

The rate of divorce for all couples has held steady at about 50%, but it's skyrocketed for people over 55. The Census Department reports that the rate of divorce is highest for people between the ages of 55 and 64. Among people who got divorced in the last year, over 34% were from this older group.

What does this mean for women? For starters, it means a lot fewer assets to work with. Even if you split assets equally with your former spouse, it costs more for two people to live on their own than for two people to live together, so your living expenses will eat up more of your assets more quickly than if you were still married. That means Social Security will probably play a bigger role in your retirement.

Divorced women have some options. If you were married for at least 10 years and haven't remarried since, you can either take Social Security on your own record or receive half of your ex's, depending on which is bigger.

I've had divorced clients refuse to marry their current partners because they don't want to lose out on the spousal benefit. It's also worth noting that drawing off of your ex's benefit will not lower the amount they receive, so there's no negative to them whichever way you choose.

Put it all together

Social Security is an important component of your retirement income, but it can't be all of it. The higher your pre-retirement income, the less it will replace. I advise clients to think of Social Security as the pot of money they'll use for health care expenses in retirement. Between Medicare copays, supplemental coverage and long-term care , you can expect a lot of health-related expenses in retirement.

But that's not to say you shouldn't maximize Social Security as much as you can. The best way to do that is by working with your legal and finacial who understand the complexities and can run different scenarios well before you hit 62. That way, when letters start arriving from the SSA, you'll have a game plan.

Knowing when to claim your benefits could mean the difference between a comfortable retirement and outliving your money.

“Optimizing your Social Security benefits can be life-changing.”

— Nevenka Vrdoljak, managing director, Chief Investment Office, Merrill and Bank of America Private Bank

WOMEN TYPICALLY LIVE LONGER1 and earn less than men.2 As a result, they’re more at risk of outliving their money, says Nevenka Vrdoljak, managing director, Chief Investment Office, Merrill and Bank of America Private Bank.

Saving and investing more for retirement helps, of course. But there’s another often overlooked move that can go a long way toward helping women create a more comfortable and secure future for themselves — knowing when to claim their Social Security benefits. “Optimizing your Social Security benefits can be life-changing,” Vrdoljak says. The following three claiming strategies are worth considering. 

1. Wait as long as you can to claim your benefits.

Your full retirement age (FRA) is when you first become entitled to full (or unreduced) retirement benefits. For each year beyond your FRA that you wait to claim your benefits, Social Security will bump up your payouts by 8% annually until you reach age 70, which is the maximum age for boosting benefits. A single woman who is entitled to a Social Security benefit of $18,000 yearly at age 67, for example, could see her annual benefit rise to $22,320 if she waits until age 70.3

2. Married? Coordinate with your spouse.

When there are two of you, you have additional flexibility in how you can take your Social Security benefits. And particularly in cases when one spouse has much lower benefits, the opportunity to maximize your Social Security income expands. One possible scenario: Whoever is earning more could wait until age 70 to file, and the lower-earning spouse could claim their reduced retirement benefit at age 62 (if retired or earning limited income) and then switch to spousal benefits when the higher earner files for benefits. The original reduction will be taken into consideration when determining the total monthly benefit. If eligible for both retired worker and spousal benefits, the lower-earning spouse will generally receive the higher of the two amounts.4 (Spouses are entitled to up to 50% of their higher-earning partner’s full retirement benefits.5)

And don’t forget: Maximizing your benefits carries over to survivor benefits. By waiting to claim, the higher-earning spouse increases the amount the survivor will receive.6 Widowed spouses are due between 71.5% and 100% of the deceased worker’s benefit based on the age the survivor begins collecting.7

3. Divorced? Don’t forget your ex.

If you’ve been divorced for at least two years and are unmarried — and your marriage lasted 10 or more years — you may be able to claim a benefit worth up to 50% of your ex’s full Social Security benefit. “For divorced spouses who qualify, the benefit is the same as for married couples,” says Vrdoljak. To qualify, you must be 62 years of age or older, your ex-spouse must be eligible to begin collecting and the spousal benefit must be greater than what you’d receive based on your own work history. Even if your ex has remarried or isn’t yet collecting Social Security benefits, you’re still eligible to receive benefits based on their earnings record. If your ex has died, you may receive the same benefits as a surviving spouse.

Your legal advisor with RJ Fichera Law Firm can help you understand how your Social Security income fits into your retirement plan and, in conjunction with your tax professional, decide when it might make the most sense for you to claim your benefits.

Footnotes:

1 Social Security Administration, “Retirement & Survivors Benefits: Life Expectancy Calculator,” accessed February 2024.

2 U.S. Bureau of Labor Statistics, “TED: The Economics Daily,” January 25, 2024.

3 Assumes she was born in 1960 or later. Results shown in today’s dollars. Source: Social Security Administration. Available at socialsecurity. gov/OACT/quickcalc/ accessed February 2024. Source: Chief Investment Office.

4 If you were born January 2, 1954, or later, and are eligible for benefits both as a retired worker and as a spouse (or divorced spouse) in the first month you want your benefits to begin, you are required to file for both benefits at once, (unless an exception applies), and you'll generally receive the higher amount. Source: Social Security Administration, "Benefits for Your Family," accessed February 2024.

5 Source: Ibid.

6 Note: The spouse’s survivor benefit is limited to the greater of the amount the deceased worker would be receiving if alive or 82.5% of the primary insurance amount (PIA).

7 The exact percentage depends on the survivor’s age when they begin collecting, starting at 71.5% at age 60 and going up to 100% at their own full retirement age. For further information, visit the Social Security Administration’s survivors benefits page.

Note: This is article is combination of two (2) articles written and published by By Erin Wood, CFP®, CRPC®, FBS® published August 15, 2023, for Kiplinger Magazine and Nevenka Vrdoljak, managing director, Chief Investment Office, Merrill and Bank of America Private Bank, whose opinions are as of 02/20/2024 and are subject to change, and brought to you by the RJ Fichera Law Firm , where our mission is to provide trusted, professional legal services and strategic advice to assist our clients in their personal and business matters. Our firm is committed to delivering efficient and cost-effective legal services focusing on communication, responsiveness, and attention to detail. For more information about our services, contact us today !

Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.

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Important Disclosures

Opinions are as of 02/20/2024 and are subject to change.

This material should be regarded as education information on Social Security and is not intended to provide specific advice. If you have questions regarding your particular situation, you should contact the Social Security Administration and/or your legal advisors. https://www.ssa.gov/