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A big gender gap exists in Social Security wealth because of married women’s retirement decisions, according to a new paper from the National Bureau of Economic Research.

Women tend to marry older men and to retire around the same time as their husbands even though they also live longer, on average, than men and may have had shorter careers because of childbearing.

By retiring early, the paper says, women often forego both substantial future earnings and significant amounts of prospective Social Security benefits that they would have received if they had worked longer.

When to start collecting Social Security is one of three big decisions every pre-retiree must make, according to a new advisory. Two experts recently discussed Social Security timing and what couples should consider.

The NBER paper’s author, Nicole Maestas, compared two groups over time: the “early cohort,” born from 1936 to 1947, the oldest of which reached age 62 in 1998; and the “boomer cohort,” born from 1948 to 1959, the oldest having turned 62 in 2010.

In the early cohort, 69% of women were younger than their husbands, by an average of 2.7 years, while 63% of boomer wives were younger by an average of two years.

Maestas found that the average employment rate, lifetime number of years worked, annual earnings and hourly wages all increased from the early cohort to the boomer cohort for women ages 51 to 56. For men in their early 50s, the employment rate and the number of years worked both declined; earnings and hourly wages grew, but less so than for women.

The employment rate for married women was higher at every age from 51 to 64 for boomers relative to the early cohort. In contrast, the employment rate for boomer men was lower than for the early cohort until age 58.

For both female cohorts, real earnings increased until age 55 and began to decline at age 57, whereas men’s earnings continuously decreased from ages 51 to 61. In addition, women’s earnings increased by 31% across cohorts, compared with a 10% increase in men’s earnings.

In other words, the gender earnings gap shrinks as individuals age into retirement.

Effects of Early Retirement

For both cohorts, women were more likely than men to retire before age 62, or to move from full-time to part-time employment. In the boomer cohort, 47% of women retired or reduced work early, but only 41% of men did so.

According to Maestas, Social Security benefits at age 65 — determined by an individual’s highest annual earnings over a 35-year period — were higher for women in the boomer cohort.

For example, average Social Security wealth, the present discounted value of lifetime benefits, for women in the boomer cohort was about $145,000, 26% more than the average value for the early cohort. Men’s SSW also increased across cohorts, but only by 7%.

Maestas calculated that SSW would be substantially higher for women in both cohort groups if they continued working until age 70: 17% higher for the older women and 10% higher for the boomers.

Conversely, SSW for men would decline by 3% (in real terms) in the early cohort and by 1% in the boomer cohort if they worked until age 70. The reason: women’s earnings later in life replace lower earnings years from earlier in a woman’s career, a benefit men do not see.

If women continued to work through their 60s, this would virtually eliminate the gender gap in SSW, according to Maestas.

When ranked by the amount of additional SSW they would receive if they worked to age 70, married women in the top quartile would gain an average of more than $36,000, compared with only $1,300 for those in the bottom quartile.

Here’s the bad news: Despite these potentially significant differences in the financial consequences of early retirement, Maestas found that the early retirement rate among women with much to gain from continued work was comparable to that for women with relatively little potential gain.

“This suggests that individuals do not factor these potential gains into their employment decisions, and it raises the question of whether individuals are able to correctly assess the opportunity costs associated with reducing work effort before age 70.”

Which further suggests an important role financial advisors can play in discussing the timing of retirement with their still-working clients.

A recent report examined other deleterious effects of early retirement.

— Check out Kotlikoff: Social Security’s Rules Ripping Off Recipients on ThinkAdvisor.