Getting smart about claiming female clients’ benefits
by Roberta EckertMs. Eckert is Vice President of the Nationwide Financial Retirement Institute. Visit nationwide.com
Social Security is vital in the lives of American women, and many could use expert advice to get the most from their Social Security benefits. A new Nationwide Retirement Institute survey reveals that many women don’t realize the variety of smart filing strategies available in collecting the essential financial support for their retirement.
These oversights can prove particularly damaging for women. They comprise 56 percent of all beneficiaries ages 62 and older, live longer than men and are more likely to be single and depend on one income when older. For instance, a 65-year-old woman today can expect to live another 20.6 years, to age 85.5, according to a National Center for Health Statistics estimate in October 2014. (A 65-year-old man is expected to live to age 82.9.)
Those extra years can prove painful, especially for women with limited financial resources. Nearly half of elderly unmarried women receiving Social Security benefits rely on them for 90 percent or more of their income, the Social Security Administration reports. And what many women discover when their benefits actually begin can prove eye-opening.
The Nationwide survey, conducted by Harris Poll, of 432 women over 50 who are retired or plan to be in the next 10 years, revealed that one in four (24%) said their benefits were less than expected. On average, they expected to get $1,457 in monthly benefits. Those that took them early collected $980 a month, and those who took their benefits on time received $1,376.
- Twenty-five percent of women retirees think life is worse than before retirement.
- Thirty-eight percent can’t do the things they wanted in retirement.
- Twenty-five percent say health-care expenses keep them from living the retirement they expected.
- Seventy-one percent said health problems came earlier than expected.
Nationwide’s findings underline why it’s critical for women to grasp all the key Social Security strategies available. As underscored by the survey, these are five critical matters to remember when advising female clients on retirement and Social Security planning.
No. 1: Plan to use other retirement income sources to help eliminate the need for Social Security
early in retirement
Eighty-two percent of retired women took their Social Security benefits early, locking them into a lifetime of lower payments, the survey showed. Only two percent waited until age 70 to maximize their monthly check and receive up to a 76 percent larger benefit than those who claim at 62.
Of course, many women feel forced to take benefits immediately at age 62 – and depend on the benefits for income early in retirement. The Nationwide survey found that of those that filed for benefits early and wouldn’t change that decision, 35 percent needed the money, 18 percent retired earlier than planned, 19 percent cited health problems, 16 percent didn’t think they would live long enough and 11 percent lost their job. Twenty-three percent of respondents would change their decision if they could.
Aside from lacking a plan for income early in retirement, one major misunderstanding hurts women when claiming Social Security. Many still think retirement age is 65 and that’s when they take their benefits. Yet, for women born between 1943 and 1954, full retirement age is 66. Starting with those born in 1955, full retirement age gradually rises in increments of two months until reaching age 67 for women born in 1960 and beyond.
This distinction matters. A woman who claims at age 62 but whose full retirement age is 66 will receive a 25 percent permanent cut in monthly benefits. That rises to 30 percent for those who claim early at 62 and whose full retirement age is 67. In dollar terms, if a woman’s full benefit would be $2,000, she would receive $500 a month less than that – for life.
Delaying until age 70 to take benefits makes quite a dollar difference as well – but requires most to have a plan in place for retirement income aside from Social Security. For a woman whose full retirement age is 66, delaying for another four years will provide a 32 percent boost in Social Security, or an extra $640 a month if her age 66 benefit would have been $2,000.
No. 2: Help women who are able eligible for Social Security strategies claim benefits before the deadline
Delaying benefits until full retirement age releases some important strategies for women – such as “file and suspend” and “restricting an application to spousal benefits.” Early claimers can’t employ such strategies – and following the Bipartisan Budget Act of 2015, after April 30, 2016 many of the strategies available to retirees will disappear for all.
Consider “file and suspend.” When claiming Social Security benefits, a woman doesn’t have to take it right away. She can file for a benefit and then immediately suspend it. This has two advantages. If she’s married, her spouse can’t take a spousal benefit without her filing for hers.
Thus, “filing and suspending” unlocks the spousal benefit while letting a woman earn delayed retirement credits. Here’s what it means in financial terms. If a 66-year-old wife’s spousal benefit is $1,000, but her 66-year-old husband wants to wait until age 70 to take his benefits, they can gain $48,000 if he files and suspends his benefit.
A single woman also can benefit in the form of “insurance” should, say, a serious medical event cause her to take benefits at age 68 instead of the planned 70. By filing and suspending at full retirement age, a woman in that situation can get a lump sum going back to the date she filed and suspended. Thus, if her monthly benefit at full retirement age was $2,000, she would get $48,000. (If she doesn’t file and suspend, however, she would get a lump payment of just six months of benefits.)
Consider the strategy of “restricting an application to spousal benefits.” Under rules that went into effect Nov. 2 (2015), if a woman was born before or on Jan. 1, 1954, is married or divorced and eligible for a benefit on an ex-spouse’s Social Security record, she can use a so-called “restricted application” to claim a spousal benefit when she reaches full retirement age while letting her own benefit continue to grow. She then would switch to her own higher benefit amount when she reaches ages 70.
The new rules don’t allow women born after Jan. 1, 1954 to claim a spousal or ex-spousal benefit, although widows may continue to use it at any claiming age.
No. 3: Grasp the “working for 35 years” rule
Social security benefits are calculated using the highest 35 years of earnings as well as the age when benefits begin. Women, many of whom left the labor force to raise children, should consider working to that 35 years figure, even part-time if possible. Why? The Social Security Administration uses a zero for each year without earnings to determine retirement benefits, so a year with part-time earnings knocks out a zero year.
In addition, the 35 years don’t have to be consecutive so, if a woman’s highest earning years were before she left the labor force, they will help offset any years of lower-earning work later in life. Women also can work while taking benefits and those wages can help boost a benefit. The Social Security Administration reviews beneficiaries’ record of earnings each year.
No. 4: Divorced client? Many divorcees are eligible to claim benefits on their ex
Under Social Security regulations, a decade of marriage is the magic number for being eligible to receive an ex-husband’s Social Security benefit. Financial experts say many divorced women don’t realize they may be able to collect off their ex-husband’s Social Security. Indeed, both ex-spouses can benefit. If a woman claims benefits at least two years after a divorce, she and her ex can claim a spousal benefit on the other, which is an option unavailable to couples still married.
In addition, qualifying on an ex-husband’s record lets a woman engage in other tactics that still-marrieds use to maximize benefits. For instance, a woman at full retirement age could restrict her application to a spousal benefit and let her own benefit earn delayed retirement credits until age 70. Therefore, the wife could reap $48,000 if she took the spousal benefit at age 66 and if, say, her benefit was worth $1,500 and she qualified for a spousal benefit of $1,000 from her ex’s record.
Further, an ex-wife can qualify for a survivor benefit off an ex-husband’s record if he dies. It would be worth 100 percent of what the ex was receiving at death.
No. 5: Use your expertise to help women consider all scenarios
Too often, we assume that one strategy will provide us with more money than another. Those assumptions can prove wrong, so do the math for any Social Security benefit strategy that applies. This means a woman should consider what she might get under “file and suspend” regulations and the other key strategies. If divorced, she should remember she might qualify for benefits under her ex-husband’s record.
If widowed, she should claim a survivor benefit off her spouse’s record. It can be claimed as early as age 60. At full retirement age, the benefit is worth 100 percent of what the husband was receiving at his death – or what he would have received if he hadn’t yet claimed his benefit.
Several avenues exist for women to use to determine the best strategy for claiming benefits. Social Security officials are now allowed to advise beneficiaries, and a financial adviser can help as well. AARP provides a Social Security benefits calculator and local libraries often offer workshops and seminars. Nationwide’s Social Security 360SM program helps advisors find their clients’ best Social Security filing options. The program includes a tool with software that compares all of the election strategies available. ◊
The 2015 Social Security Study was conducted online within the U.S. by Harris Poll on behalf of Nationwide between June 15 and June 22, 2015. The respondents comprised a representative sample of 432 U.S. women aged 50 or older who are either retired or plan to retire in the next 10 years. Data are weighted where necessary on gender, race/ethnicity, region, education, and propensity to be online, to bring them in line with their actual proportions in the population.
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The information provided as part of the Social Security 360 program is provided for informational purposes only and should not be construed as investment, tax, or legal advice or a solicitation to buy or sell any specific securities product. The information provided is based on current laws, which are subject to change at any time, and has not been endorsed by any government agency.
1. “Mortality in the United States: 2012,” National Center for Health Statistics Data Brief, October 2014. http://www.cdc.gov/nchs/data/databriefs/db168.pdf