from the November Advisor

Women & Money

Optimizing Social Security benefits

by Shawn Britt

Ms. Britt is director of long term care initiatives for the Advanced Consulting Group of Nationwide Financial. Connect with her by e-mail:

There is a retirement crisis looming for many Americans and women can be especially vulnerable. But there are steps we can take to be better prepared and one of the most important – and most overlooked – is optimizing Social Security benefits.

Social Security can represent up to 40 percent of the total income Americans receive throughout retirement. However, according to a survey by the Nationwide Retirement Institute SM, only 15 percent of women waited until their full retirement age to take their benefit and only 3 percent took it after their full retirement age.

That’s more than four in five women choosing to lock in a lower payment for life and missing out on what could be hundreds of thousands of dollars of retirement income. And many now admit opting for the immediate income was the wrong choice. In the survey of 471 women aged 50 or older who are either already retired or plan to retire in the next 10 years – only 29 percent of women retirees say life is better than before retirement and 28 percent say life is worse. For those who say it’s worse, most say it’s due to lack of income in retirement and higher than expected cost of living expenses.

Women who took their Social Security benefit early report an average monthly payment of $1,025. Those who collected it at their full retirement age have an average $1,270 monthly payment. Of all the female retirees surveyed by Harris Poll on behalf of Nationwide, only 10 women delayed collecting their benefit until 70. They reported an average monthly payment of $1,630 (or 59 percent more than if they had taken it early).

Unique challenges

There are many reasons women take Social Security early. Some mistakenly believe taking it earlier will result in more money over the long run, while others may have been forced into retirement early and need the money.

Many people file early because they think “once I am in the system they can’t kick me out.” Others miscalculate how long they have until they breakeven. Many think it’s 85 or older, but for many people it is around 80.

The fact is life is long – especially for women. Women’s average life expectancy is 86, with one in four reaching 92. That’s a long time to rely on savings, so maximizing retirement income is crucial.
Longevity also increases the chance of needing long-term care services during their golden years. That’s why it’s especially important for women to include planning for health care costs in retirement.
But planning for the cost of long-term care is not the only challenge women face in retirement. The other potential challenge is the cost of being a care giver.

It is estimated that 75 percent of unpaid caretakers in the U.S. are women, and if a spouse is not available, the caretaker usually becomes the daughter or daughter-in-law. According to the Women’s Institute for a Secure Retirement, women typically work 12 years less than men over their lifetime to care for children and other family members.

And while women have gained ground in the workplace, they still earn less than their male counterparts. According to Census Bureau statistics, women make on average 77 cents to every dollar men make.
The sacrifice women make for their families at the expense of their health and finances does not come cheap. Since Social Security benefits are based on average earnings over the best 35 years of a career, women are often financially penalized for leaving the workforce to raise children or care for a parent.
While out of the workforce, women are not able to build their pension benefits, pay into Social Security or contribute money to an employer’s 401(k) or other retirement plans, all of which can negatively affect retirement savings and income. In fact, women caregivers are two-and-a-half times more likely to end up in poverty and five times more likely to depend primarily on Social Security for income.

...many now admit opting for the immediate income was the wrong choice

Women need to understand the risk they face when being thrust into the role of a caregiver, the cared-for, or both. Families need to be aware of what they will face if they do not plan ahead for this risk both emotionally and financially.

Learn your options

Many people are not aware of the different options available for taking Social Security income. For example, married women might think about having their husband file and suspend, which will still allow the wife to collect spousal benefits. The husband will then wait to age 70 to take his own benefit. That way, if he dies before her, she ends up with a much higher payment as a widow.

Too many spouses think they can’t do this because they are still working. That’s a huge mistake and you can’t go back later to correct it and get those benefit dollars back.

Filing early also may make sense if you’re in poor health and don’t expect to live long. But more often than not, the decision is tied to an incorrect expectation about longevity or fear of Social Security running out of money.

Work with an advisor

Women not working with a financial advisor are nearly three times as likely than those who do to say their Social Security payment was less or much less than expected (37 percent vs. 13 percent). Yet, only 33 percent of women work with a financial advisor.

According to an earlier Nationwide Retirement Institute survey, nearly half of women and men say they are “terrified” of what health care costs may do to their retirement plans. Yet, women respondents nearing retirement are much more likely than men respondents to say they have not estimated:

  • How much they will spend each year in retirement on things like insurance premiums, copayments and deductibles (41 percent vs. 27 percent men)
  • How much income in retirement they will have from things like Social Security, retirement accounts or pensions (21 percent vs. 12 percent men)

On average, women estimate that Medicare will cover 65 percent of their annual health care costs. But, similar to men respondents, when asked how they came to this percentage, 85 percent either guessed or did not know. Only 2 percent said they were told this by a financial advisor.

Women are also slightly more likely than men to say they are somewhat unconfident to not at all confident in their plan to live comfortably in their retirement years (46 percent vs. 39 percent men).
The survey found the 37 percent of women working with an advisor said they received good advice regarding Social Security, compared with only 13 percent of women who said they received good advice when not working with an advisor.

In summary

Women who work with an advisor are more likely to receive good advice on optimizing Social Security. Those who have the ability to plan ahead or are able to redirect goals for a few years may find it financially worth it for their future. Maximizing benefits will result in less chance of outliving other income sources and reduce the chance of not being able to maintain your lifestyle.

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