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Retirement Planning > Social Security

How to maximize Social Security benefits for women

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When to begin drawing Social Security is an important decision for all retirees; however, it is an even more critical decision point for women. Whether a woman is currently married, divorced or widowed, there are specific risks and issues she faces around the Social Security decision that men typically don’t face.

We’ve all heard about the most common risks:

  • Women have lower lifetime earnings, resulting in
  • Lower pensions (if any), and
  • They live longer lives than men.

Every decision around when to draw Social Security is based on longevity. If we knew how long we were going to live, we would know exactly when to draw on benefits! The consideration is that you’ll take approximately a 25 percent reduction if you take Social Security at 62 instead of at your full retirement age benefit (somewhere between ages 66 and 67) vs. the attraction of gaining 8 percent per year on your Social Security benefit for each year you wait to elect benefits. There are a variety of online calculators available to help determine the perfect time to draw those benefits, but keep in mind, they all depend on the best guess of how long a person will live. 

Related: Why Social Security planning is the new requirement for retirement advisors

The breakeven point in almost all scenarios is about age 80. If you think you’ll live considerably longer than age 80, you will want to wait as long as possible before applying for Social Security benefits. No one in your family has ever lived past age 80? You might apply as soon as possible.

Given the risks, the impact of your client’s decision about when to draw Social Security is compounded. So what can you and should they do when considering this decision? Here are some key things to ponder:

1. Examine the value of working longer 

When you’re reviewing overall planning, if there’s a gap between where the client is and where they would like to be, one of the things within their control to help close the gap is to work longer. This is particularly important for women because they’re likely to have lower lifetime earnings. Those earning years at the end of a career can have a compounded positive benefit.

2. Understand the value of Social Security benefits 

Once started, Social Security benefits provide a cost-of-living adjusted benefit that cannot be outlived. The higher the benefit when the recipient begins drawing, the more compounding accelerates their benefit through the years.

3. Develop a strategy for using retirement resources like IRAs in combination with Social Security 

Whether someone is single or married as they approach the Social Security decision will make a difference. Since women generally live longer than men, you may encourage the husband to wait to begin benefits. If the generalities play out, the husband’s benefit is likely higher than the wife’s and her life expectancy is greater, so using retirement accounts while waiting for the husband to draw on Social Security effectively provides higher income while they both are alive, as well as acts as a higher survivor benefit, no matter who passes away first.

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Now let’s look at these keys from the perspective of various scenarios specific to women.  

Single woman, never married 

This individual is planning her Social Security timing around her retirement date, assets and best estimate of longevity. If she doesn’t plan to retire prior to her full retirement age, we know she’ll at least benefit from the full value of her Social Security benefit. The next step is reviewing her assets to determine whether she has the resources to supplement her income from full retirement age to age 70. If her family history indicates that she may live well past age 80, waiting until age 70 to begin benefits can be an important component of her retirement. 

Single woman, already widowed 

If the husband has passed away and your client hasn’t begun to draw Social Security yet, there are options you can use in the planning, some of which may provide the widow with a significant advantage. The widow may begin drawing reduced benefits as early as age 60; however, those benefits will be dramatically reduced for drawing early.

Also, remember that if someone is collecting any Social Security benefits prior to their full retirement age and still working there is an earnings limit of $15,720. If they earn more than this amount, for every $2 over the $15,720, they give up $1 in Social Security benefits. If the client is still working, you’ll likely want to recommend deferring on drawing Social Security.

There is a twist for widows that allows them to draw on the deceased spouse’s benefit while waiting to take their own. If at age 70, the surviving spouse’s benefit is higher than their survivor benefit, they can benefit by switching. The reverse is also true. They could begin by drawing their own benefit if it is smaller, while allowing the survivor benefit to grow until age 66.

Married woman

Many women don’t want to think about it, but if they’re married, their husband might die before they do. Odds are he will, since women on average live longer than men. At some point in their life, it’s likely the wife will become eligible for a survivor benefit.

The decisions made early in retirement, impact how much she would receive as a survivor. For example, if the husband’s benefit is more than the wife’s, but they both begin drawing at age 62, if the husband passes away, the surviving spouse will only be eligible for his reduced benefit and theirs will go away (you can’t draw on both benefits at the same time). This is a reason to encourage the spouse with the highest Social Security benefit at age 70 to wait to draw benefits, if at all possible. 

Single woman, married for more than 10 years, divorced

There are two benefits this woman may be eligible for under their former husband’s Social Security. If he is over age 62 and still living, the divorcee may apply for half of his benefit if it would be more than her own. Once this benefit begins, she can’t change back to her own benefit, even if it has grown higher by age 70 (there are grandfathering options for those born prior to Jan. 1, 1954). When you elect to draw on that former spouse, it is deemed to be all you are eligible for.  

The only way she would see an increased benefit is if the former spouse passes away, and she becomes eligible for his full Social Security benefit. The rules then allow her to act on his benefits as a survivor. If he passes away prior to her beginning her own benefits, she would have the same survivor rights as if they had been married at the time he passed away. Timing is everything.

Age, spouse’s or ex-spouse’s age, retirement assets, Social Security benefit and retirement age all have an impact on Social Security election decisions. These scenarios reflect not only the complications but also the benefits of taking the time to become educated on specific Social Security planning. 

See also:

What women want: Annuitizing retirement assets

A risky outlook: 8 facts about women and retirement [infographic]

Being a woman will cost you $430,480 over your working lifetime

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