Why Social Security Planning Is Different for Women

You pay into Social Security for the majority of your working years, so it is only fair that you seek to get the most from the program during your retirement. Social Security can help to replace lost income after you stop working and maximizing your benefit amount can help you stretch your savings over the course of your retirement. That’s why planning for Social Security is such an important part of a retirement plan.

However, women face a unique set of challenges when planning for Social Security. Understanding how Social Security planning is different for women can help you get the most from your Social Security benefits and avoid mistakes that could cost you money.

Women Rely on Social Security for a Larger Part of Their Retirement Income

Social Security is an important part of any retirement plan, but it is especially important for women. That’s because women tend to rely on Social Security benefits for a larger portion of their retirement income than men. In 2015, 55.2% of women relied on Social Security to provide more than half of their income compared to 47.5% of men.

In that same year, 27.4% of women relied on Social Security to provide more than 90% of their income, compared to 21.3% of men. This data shows that Social Security is especially vital to the retirement success of women as a whole. But the bad news is monthly benefit payments for women tend to be lower than their male counterparts.

Social Security Benefits Tend to Be Lower for Women

Social Security is determined by a gender-neutral calculation based on a person’s highest 35 years of earnings. However, women tend to have lower earnings and / or shorter employment histories than men which can impact their Social Security benefit calculation.

Women Tend to Earn Less

In 2018, women who worked full-time earned 81.1% of the amount that men earned. Since prior earnings are used to calculate Social Security benefits, this income discrepancy can lead to lower benefit amounts for women.

Additionally, women are more likely than men to work in part-time roles. In 2018, 24% of employed women worked part time compared to just 12% of men. With fewer hours, those who work part-time typically make less in a year than those who work full-time which contributes to a lower earnings history.

Women Tend to Have Shorter Employment Histories

Women are more likely to perform unpaid labor in the home which can make them less likely to hold paid positions outside of the home. For example, in 2019, 57.1% of women were included in the labor force compared to 69.1% of men.

When children are added to the equation, the differences in employment between men and women are even more stark. When looking at parents with children under the age of 3, 59.1% of mothers worked outside of the home compared to 91.6% of fathers. This gap in employment can mean that mothers who choose to stay home to care for their children have fewer years of earnings history to use when calculating their Social Security retirement benefits.

Additionally, women tend to retire earlier. In 2018, 15.3% of women worked past age 65 compared to 23.8% of men.

Lower earnings and shorter work histories can lead women to have lower Social Security benefit amounts when compared to their male counterparts. In 2019, the average monthly benefit of a retired woman was $1,337 and for a man it was $1,671.

Women Are More Likely to Be Widowed

In 2022, a man at age 65 is expected to live an average of 17.9 years. On the other hand, a woman at age 65 is expected to live an additional 20.5 years. In the U.S., women are on average 2.2 years younger than their male partners. These two factors greatly increase the likelihood that women will be widowed during retirement.

When one spouse dies, the surviving spouse continues receiving the higher of their Social Security payments and the lower payment stops. For this reason, widows typically see a decrease in their total household Social Security income of 33 – 50% after their spouse dies. Because of this fact, it is especially important for women to work to maximize their Social Security during retirement. This includes creating an estate plan that replaces lost income after a spouse’s death.

What Can Women do to Maximize Their Social Security Income?

It is imperative that women understand their options when it comes to Social Security. When deciding the optimal time to begin receiving Social Security benefits, there are several strategies that women can employ. These include:

Understanding Benefit Options

Many people know they can be eligible to receive benefits based on their own earnings record beginning at age 62. But there are other types of Social Security benefits that you could qualify for like spousal benefits and survivor benefits.

For those who don’t qualify for Social Security based on their own earnings record, or who earned significantly less than their spouse throughout their lifetime, spousal benefits can provide much needed income. Spousal benefits can be up to 50% of your spouse’s full retirement benefit. If you are divorced but were married for 10 years or more, you could qualify for spousal benefits based on your ex-spouse’s earnings record.

If your spouse or ex-spouse passes away, you may be able to receive survivor benefits as well. These benefits can be claimed as early as age 60, or earlier if you meet certain criteria.

Understanding FRA and Benefit Reductions

You can begin retirement benefits as early as age 62. However, your benefits may be reduced if you take them before your Full Retirement Age [FRA]. For example, if your FRA is 67 and you begin benefits at the earliest possible age, 62, your benefits would be reduced by 30%. Claiming benefits early can also reduce spousal benefits. In the previous scenario, spousal benefits would be reduced by 35%.

On the other hand, you can delay your retirement benefits until age 70. This increases your benefit amount by 8% for each year that you delay.

Coordinating Benefits with a Spouse

Based on the information above, you may consider delaying your Social Security until age 70 to get your maximum benefit. This could be a good strategy but there is more to consider.

If you delay benefits for several years after you retire, it could cause you to draw more from your retirement accounts in the early years of your retirement to make up the difference in income. This could impact the future growth of your portfolio and could cause you to run out of money later in retirement.

Sometimes, it makes sense for one spouse to delay their benefit amount while the other begins theirs at or before FRA. A financial advisor can help you and your spouse determine which strategy is best in your scenario.

Coordinating benefits with your spouse is also an important part of estate planning. As mentioned before, women are more likely to be widowed during retirement. And, if both spouses are drawing Social Security when one spouse passes away, the surviving spouse receives the higher of the two payments. This can lead to a significant loss of income for widows. Coordinating benefits with your spouse can help you plan for how to maximize your combined benefits while both spouses are living, and after one spouse passes away.

Speaking With an Experienced Financial Advisor

The most important thing that women can do to plan for Social Security is speak with an experienced financial advisor. As you may have noticed, there are many rules regarding Social Security benefits and many options for how to coordinate benefits between spouses, and those can be difficult to navigate on your own.

An experienced financial advisor can work with you to determine your FRA, estimate your benefits, and create a plan for maximizing your Social Security benefits throughout your lifetime. A financial advisor can also help you project how different scenarios could impact your benefits and your financial plan.

Financial Fingerprint™ from Brookstone Wealth Management Helps Women Maximize their Social Security Benefits

Women face unique challenges when planning for Social Security. But with Financial Fingerprint™ from Brookstone Wealth Management, women can feel confident that they have the tools to overcome these challenges.

Financial Fingerprint™ is a comprehensive wealth management program that is quick to assemble, easy to understand, and simple to modify as your circumstances change. With Financial Fingerprint™ and a partnership with a trusted financial advisor, you can be assured that you are on the path toward your True North.

At Brookstone, our focus is on coaching, teaching, and mentoring our clients. To learn more about our philosophy or to get started planning for a successful retirement, contact us today.