Preparing for retirement and attaining financial security is not an easy task for anyone, but women tend to face more hardships than men in this area. Before discussing what women need to know about Social Security, it is important to understand the obstacles women face.
The first obstacle women face is that, historically, they spend less time in the workforce than their counterparts. This is a result of several causes such as parental leave or caregiving for a family member.
Women are also much more likely to work part-time. Working less negatively affects many women because Social Security eligibility and benefit payments are based on how long we work and how much we earn.
Workers must earn a minimum of 40 work “credits” to qualify for Social Security benefits. A maximum of 4 work credits per year can be earned. Therefore, a minimum of 10 years in the workforce is required to earn those 40 credits.
Social Security benefits are not only calculated based on an individual’s earnings, but specifically their highest 35 years of earnings. Some women work less than the required 10 years resulting in earning no benefit at all. While other women work more than 10 years, but less than 35 years. Each year without earnings will negatively impact the Social Security payment she receives in the future.
In addition to less time in the workforce, the gender pay gap adds another hardship for women.
In 2020, it was reported that women earn 83 cents for every dollar that a man makes. Social Security benefits are calculated based on an individual’s earnings. Therefore, the less income a woman has, the less Social Security benefits she will receive.
On top of Social Security being negatively impacted by less time working and lower earnings, other sources of retirement income are also negatively affected.
Some employers offer pension plans and/or retirement savings plans such as 401(k) plans. When a woman works part- time or leaves her job for any reason, the employer and/or the woman may no longer contribute to these types of plans. Working less and earning less means less employment related retirement benefits.
One of the biggest obstacles women face when preparing for retirement is having a longer life expectancy. You may think this is a positive thing to live longer and I agree, it is! However, a longer life comes at a cost.
In 2018, the Social Security Administration found that women age 65 were expected to live, on average, 21.4 more years and men age 65 were expected, on average, to live 18.9 more years.
When a woman lives longer, she needs more money. There are many associated costs with growing older and living longer, one of the largest being health and home care. As a result of living longer, women have the potential to outlive their money, and this “longevity risk” is a big concern.
Knowing the obstacles women face is an important step in obtaining a secure financial retirement. Knowledge is power. And what you do with that knowledge is key.
According to the Social Security Administration, “Social Security is the major source of income for most of the elderly,” especially for women.
Social Security can provide women with a strong layer of financial protection if they take advantage of what is available to them. I encourage all women to know which benefits they are eligible to receive, understand the rules that apply to them, and choose the strategies that maximize those benefits.
The following are some of the most important Social Security rules that women should understand.
If you are a single woman and eligible to collect retirement benefits, it is extremely important that you maximize your benefit to receive the highest annual amount for the rest of your life. If you are able to do so, waiting to collect until as late as possible is likely the best strategy for you.
Even if you have not worked or worked very little, you may still be eligible for benefits. If you are/were married, you may be eligible for benefits based on the earnings of your spouse (or ex-spouse). In order to be eligible to receive spousal benefits, you must be married for at least one year or you must be the parent of your spouse’s child. If you are divorced, but you were married for more than 10 years and are currently single, then you may also be eligible to receive ex-spousal benefits.
If you are eligible to collect more than one benefit, you will only be able to receive the amount equal to the higher benefit. Therefore, if you are eligible for your own retirement benefit as well as a spousal benefit, you will receive the amount that is the higher of the two benefits.
If you are married, one of the most important steps to take when planning your retirement is ensuring that you maximize your future survivor benefit. Remember, women are more likely to outlive their male spouse. When planning for Social Security, do it with your spouse. Determine whose benefit is going to become the survivor benefit and do everything you can to maximize it.
When you file for benefits has a big impact on the monthly payment you will receive. I encourage you to do your due diligence before filing for benefits. Collecting benefits earlier than your Full Retirement Age (FRA) can lower your payment, while delaying collection of benefits usually increases your payment. However, certain benefits such as spousal benefits, don’t continue to increase after FRA so it is important that you know the rules.
This may seem overwhelming, and it is. The Social Security program is governed by over 2,700 rules. It is complex and confusing, but a professional Registered Social Security Analyst can do all the hard work for you.
An RSSA will analyze all your options and explain them to you in detail as you review your personal comprehensive report. Together, you can decide the best course of action, what benefits to collect and when to collect them.
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