Women and Social Security

Why it's important for women to ensure that they get the most from Social Security.

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Social Security can be an important part of your retirement income. And for women, who live longer than men and who are also more likely to be single and depend on one income when they are older, it is especially important.

Consider these stats: Women make up 56% of all Social Security beneficiaries age 62 and older, and 66% of all beneficiaries age 85 and older. In 2012, only 45% of women aged 65 or older were married, compared with 75% of men, according to the Department of Health and Human Services.1

Also, not only do women tend to take time out of the workforce to care for children or aging parents, but historically they have earned less than men, on average, so their overall career earnings and savings may be lower than men.

This is why it’s important for women to ensure that they receive the most from Social Security. Here are four things to keep in mind.

1. It can pay to delay.

As you approach retirement, you need to decide when to begin taking Social Security. You can start receiving reduced benefits at age 62, rather than waiting until your full retirement age (FRA), which ranges from 65 to 67, depending on your birth date. (See your full retirement age.)

If you take Social Security benefits before your FRA, the amount of your monthly benefit payment will be reduced. If you delay collecting benefits beyond your FRA, the amount of your monthly benefit will increase until you reach age 70.

Consider the following example. If Colleen waits until age 66 (her FRA) to collect, she will receive approximately $2,000 a month. However, if she begins taking benefits at age 62, she’ll receive only approximately $1,500 a month. This “early retirement” penalty is permanent and results in her receiving 33% less year after year. If Colleen waits until age 70, her monthly benefits will increase another 32%, to $2,640 a month.2 If she were to live to age 89, her lifetime benefits would be about $47,000, or 13% greater, because she had waited until age 70 (four years beyond her FRA of age 66) to collect benefits.3 (Note: All figures are in today’s dollars and before tax; the actual benefit would be adjusted for inflation and would possibly be subject to income tax.)

To help you determine when you should begin taking Social Security, consider factors such as family longevity, how much you’ll need for retirement, and other income sources. For some, especially those who are not able to work, filing for Social Security benefits at age 62 is a necessity. But if you can delay taking benefits until your FRA or age 70, and you live into your 80s, you could benefit from doing so. If you have a savings shortfall, consider delaying retirement by a few more years. However, if you’re considering early retirement and have adequate income from investments, a 401(k), pension, or guaranteed annuity, you may want to hold off receiving Social Security benefits.

Bottom line: If you’re in good health, and have sufficient savings, it may be better in the long run to wait until your FRA or longer to begin taking Social Security.

Read Viewpoints: “Should you take Social Security at age 62?

2. You can receive Social Security and keep working.

You can collect Social Security even if you are still working or earning self-employed income—with a few important caveats. If you collect before your FRA, you can earn up to $15,720 (the 2016 limit), without any impact on your benefit. However, if you exceed the earnings limit before your FRA, your benefits will be reduced by $1 for every $2 you earn over $15,480. In the year in which you reach FRA, $1 is deducted for every $3 you earn above $41,880 (the limit in 2016). Once you reach FRA, there is no penalty for working and claiming Social Security at the same time and your benefits will not be adjusted for earned income. Also, once you reach FRA, the benefit would be adjusted up to account for benefits withheld due to earlier earnings.

However, that is only part of the story. If you continue to work, you don’t have to live on your savings, and it gives you the opportunity to keep building retirement savings. Keep working and you can contribute to a 401(k) or other tax-deferred workplace savings plan, or an IRA. You can also contribute to a health savings account (HSA), but only if you have not filed to collect Social Security, which automatically enrolls you in Medicare Part A. Lastly, you can also make catch-up contributions into your 401(k) or IRA, which allows you to set aside larger amounts of money for retirement.

Read Viewpoints: “Social Security tips for working retirees

3. Social Security may not cover all your needs in retirement.

The Social Security Administration’s statistics for women4 are eye opening:

  • The average annual Social Security income received by women 65 years and older is $12,587, compared with $16,590 for men.
  • For unmarried women—including widows—age 65 and older, Social Security composes 49% of their total income. By contrast, Social Security benefits compose only 35% of the income of unmarried elderly men, and only 30% of the income of elderly couples.
  • Almost 49% of all elderly unmarried females receiving Social Security benefits rely on Social Security for 90% or more of their income.

These numbers speak of the need to maximize your benefits and to save as much as you can in other ways for retirement.

Read Viewpoints: "Where will my retirement income come from?"

4. Make leaving your job its own decision.

Although some 40% of women claim Social Security early at age 625, it may not be the best financial decision for them longer term. “Many women make the mistake of coupling their decision to leave the workforce with their Social Security claiming strategy,” says Marcia Mantell of Plymouth, Mass.-based Mantell Retirement Consulting, Inc.

“By age 60 you may decide it’s time for a change after many years of working and raising your family, but don’t think about Social Security as a way to quit your job early,” she advises. “Make leaving your job its own decision. The good news is that you may have more resources available to you than you think. You may be able to delay claiming Social Security and not tap into Social Security early, especially if your husband or partner is still working.”

Mantell likes to remind women to look at the big picture and think about the future. “The key is to think about Social Security as your monthly paycheck in retirement. Find out if the amount is as much as it can be,” advises Mantell. “You still have options in your sixties, so don’t leave too much money on the table. Remember, you’ve still got a lot more great years ahead of you and fulfilling things to do in retirement. But by the time you get into your eighties, you have fewer financial options, so don’t jump at the first opportunity to claim Social Security at age 62 just because you really want to quit your job,” she adds.

Read Viewpoints: "Three key decisions to make before you retire"

Make an informed decision

Take the time to understand exactly how much income Social Security will provide for you. Estimate your future benefits, based on different scenarios, and then create a strategy that maximizes your monthly Social Security payments. It can make a difference.

Learn more

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1. U.S. Department of Health and Human Services A Profile of Older Americans: 2012.
2. The hypothetical examples were calculated by Strategic Advisers, Inc., based on Social Security payout tables, as of August 2016. Strategic Advisers, Inc., is a registered investment adviser and a Fidelity Investments company. All lifetime benefits are expressed in present values, calculated using an inflation-adjusted discount rate and life expectancy of 89. The numbers are sensitive to, and will change with, the discount rate and life expectancy assumptions.
3. Lifetime benefits are determined by calculating the present values of the Social Security payments over time. The present values are calculated by discounting the Social Security payouts by an inflation-adjusted rate of return. The illustrations use the historical average yield of U.S. 10-Year TIPS for discounting. All lifetime benefits are expressed in present values, calculated using an inflation-adjusted discount rate and life expectancy of 89. The numbers are sensitive to, and will change with, the discount rate and life expectancy assumptions.
4. Social Security Administration, “Social Security is Important to Women, June 2015.
5. “Trends in Social Security Claiming”, Center for Retirement Research at Boston College, May 2015.
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