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:
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.
You can get a good idea of what your eventual benefits will be by visiting the Social Security Administration (SSA) website, creating an account and using the site’s estimator function. Identity thieves sometimes create accounts in the names of others. By creating an account as soon as possible, you can prevent this, as there can only be one account for your Social Security number.
Whether married or divorced, women should be aware that they won’t be eligible to receive their own benefits if they haven’t paid into the system out of qualified earnings. This can be a problem for women who haven’t worked enough outside their home because they’ve spent long periods caring for children — work that the government doesn’t acknowledge as qualifying them for benefits. Legislation to change the rules on qualifying work records to remedy this problem has been introduced in Congress, but to no avail so far.
Because of this obstacle, it’s a good idea for these women to ensure that they get the required 40 quarters on the books by working before they have children, after their children are grown or both. This work record is cumulative, so every quarter counts, regardless of work interruptions to raise children. Assuring Social Security benefits is one among many reasons for women to seize their financial power by pursuing their own working lives, even if they don’t get started until middle age.
Making the right Social Security choices requires investing a lot of time and effort to understand the rules and how they apply to your particular situation. Spending a few days on this can make a difference of tens — or even hundreds — of thousands of dollars in your lifetime benefits. In addition to visiting the agency’s website, you can request written materials explaining the rules or make an appointment to visit your local SSA office and talk to officials there; they can be quite helpful.
These benefits are an asset that you’re probably entitled to, but to get them, you have to take control of your case, acting as your own agent and advocate. Many financial planners offer advice on this, and some qualified advisers who are knowledgeable on the subject do so for an hourly fee, which is usually the most affordable way. Whether you do all the research yourself or pay an adviser, making sure you get the greatest Social Security benefits possible is critical to maximizing your retirement income.
Any opinions expressed here are solely those of the author.
Laura Mattia is a partner with Baron Financial Group, and a fee-only financial advisor. She's a Certified Financial Planner professional (CFP®), a Chartered Retirement Plan Specialist (CRPS®) and a Certified Divorce Financial Analyst (CDFA™) and holds an M.B.A. in accounting/finance. Her Internet radio show is Financially Empowering Women™ with Laura Mattia. Having worked as finance professor at the Rutgers University Business School, Mattia is doctoral candidate in financial planning at Texas Tech University. Her research is focused on understanding why women are not as financially literate as men.