Marcia Mantell, retirement income expert, relishes getting in the weeds of Social Security rules and regs, where she learned long ago that “nothing is a straight line.” She unpacks the biggest bombshells, pitfalls and bugaboos that trip up women when they claim benefits, in an interview with ThinkAdvisor.
Author of “What’s the Deal With Social Security for Women” (Rethink Press-2019), she founded Mantell Retirement Consulting in 2005 after spending more than 13 years in retirement product marketing at Fidelity Investments.
In the interview, she reveals 20 big mistakes women make about Social Security when they claim — or fail to claim — benefits.
Indeed, Mantell argues that financial advisors have tons to learn about Social Security nitty-gritty, too.
She has trained FAs for 25 years and gives advisor and consumer presentations, seminars and workshops on Social Security and Medicare, among other critical aspects of retirement planning.
Wrong-way thinking about Social Security is particularly common among both widows and women who have had what Mantell calls “popcorn careers”: They pop in and out of the labor force over decades.
While these tricky situations are more common among women, some male clients who may be stay-at-home dads, earn significantly less than their wives or find themselves widowed, are thus at risk for the same missteps. And same-sex couples are subject to identical Social Security rules, as Mantell points out.
Income tax is another area where snags and slip-ups — if not snafus — frequently occur, particularly among high-net-worth widows; and Mantell says that FAs — in addition to their female clients — are in the dark when it comes to taxes on Social Security benefits. So are male retirees, for that matter, she says.
ThinkAdvisor recently interviewed Mantell, speaking by phone from Plymouth, Massachusetts, her base. A self-described “lagging-edge baby boomer,” she writes the blog Boomer Retirement Briefs.
Mantell holds the Retirement Management Advisor designation and speaks on behalf of the new Elder Planning Specialist training program at Salem State University.
In our conversation, she noted that often, as a speaker giving groups of women the raw truth about Social Security claiming rules, the disappointed “looks on their faces, sort of, break your heart.”
Here are excerpts from our interview:
THINKADVISOR: What compels you to explain Social Security to women?
MARCIA MANTELL: Women who haven’t played the money game have this stuff thrown at them all of a sudden. I always like to talk to us poor ladies!
So what’s the scoop on taxing Social Security benefits?
Not only don’t women know those are taxed, but neither does our industry. Women often don’t have any idea that there’s a tax consequence on their benefits. The income thresholds are very low, so most clients end up paying tax on at least some of those benefits.
What’s important for FAs to learn about this aspect of Social Security?
Many advisors don’t understand the rate at which the benefits are taxed. They’ve heard it’s 85%. It is not! Benefits are taxed at the ordinary income tax rate. This [calculation] requires use of a [retirement] worksheet found in [IRS] Publication 915.
What’s another common mistake women make about Social Security taxes?
Not having any withholding tax [taken out] of their benefit each month to go toward their tax liability. You can voluntarily choose to do that.
If she’s widowed, how is a woman’s tax liability impacted?
When a wealthier woman becomes a widow, her tax bracket can increase substantially — she can jump up two, three or more IRMAA brackets [Income Related Monthly Adjusted Amount]. It’s shocking! A widow’s tax rate may well go up significantly in the year after her husband dies because she will now be filing taxes as an individual and no longer jointly.
What’s a big mistake regarding taxes and Medicare?
Advisors fail to understand that Medicare has its own set of tax brackets — so you can be sure that widows don’t know about this too. The first shock is that you have to pay your Medicare Part B premiums: Social Security automatically reduces your benefit for that. And when a woman goes from filing a married joint tax return to a single filing [after being widowed], her Part B premium could jump from, perhaps, $148.50 to $386. This is a big [deal] for widows. They get hit on all fronts.
Does paying estimated taxes figure into Social Security taxes?
Retirees — certainly women — don’t know how often they have to pay quarterly estimates on their “income” in retirement. You’re creating income, whether from IRAs, investments or Social Security. So women can get nabbed with penalties and interest when they don’t make the correct payment within the correct time. It’s hard for women who are newly retired to figure out the tax code because it’s not the first thing on their to-do list when they retire!
What’s a pitfall for women who claim Social Security early?
When they claim at 62, they think they’ll get increased Social Security payments, a big bump-up automatic adjustment when they reach full retirement age. The mistake is thinking that their benefits will change. They do not. As soon as you claim at 62, you’ve locked in your permanent reductions.
What If a woman claims before full retirement age and continues to work?