How Women Can Avoid Costly Social Security Errors

— -- For most Americans, Social Security benefits are a critical asset for retirement — an income stream for the rest of your life. The Americans who need these benefits most are women.

Women live longer than men, so they rely on Social Security benefits longer. During their working years, women earn less, so they have lower accumulated assets for retirement. Also, they are less likely than men to have a pension from their employer. As a result, women tend to have a greater need for Social Security. Nearly half of elderly unmarried women rely on these benefits for 90 percent or more of their total income.

As benefit amounts are based on lifetime earnings, the persistent gender pay gap means that women receive substantially lower monthly Social Security checks than men. In 2009, the average annual benefits of men totaled $15,620, compared with $12,155 for women.

So it’s especially critical for women to make the right choices to get the most out of the system that they’ve paid into through Social Security tax all of their working lives. Choosing wrong can cost you plenty in the long run.

Choosing right isn’t easy because the system is extremely complex. There are a lot of misconceptions about how Social Security works. For example, the government doesn’t just send you a check after you retire. To receive benefits, you must claim them according to myriad rules. Many of these rules can have a big impact on the amount of your ultimate cumulative retirement income.

To avoid errors and get the greatest benefits, it’s important to understand how the system works, including:

• The consequences that ensue from when you claim benefits. Americans who have worked for 40 quarters are eligible for benefits, and can claim them as early as age 62. Many people rush to claim these benefits as soon as possible, but they could get larger monthly checks by waiting. When you should claim depends on your situation.

  Every year you wait to claim until you’re 70, your benefits will increase by 8 percent (not including the compounding of these increases. (Benefits also increase over time from cost-of-living adjustments.) After 70 there are no more increases, so this is the longest you should wait to claim. How long you should wait after 62 to claim benefits depends on various factors, including your health. Regardless of their health, some people need to claim early because they need the money. If this isn’t a factor for you, it’s usually better to wait to get the increased benefit.