Social Security Benefits: The Big Mistake Women Make
For many women, Social Security benefits are not nearly what they could be. That’s because women tend to claim Social Security early when it would better serve them to wait, data show.
Social Security can represent up to 40% of the total income Americans receive throughout retirement. However, only 15% of women wait until their full retirement age and only 3% take it late, according to a survey by the Nationwide Retirement Institute SM.
If you have reached normal retirement age, which is 66 for people who were born between 1943 and 1959, you can access 100% of your benefits.
For each year after that, up to age 70, your benefits increase 8%, meaning you can access 32% more at age 70 than at age 66.
If those benefits are tapped at younger than normal retirement age, they will be reduced based on the number of months you receive benefits before you reach your full retirement age. For example, if your full retirement age is 66, the reduction of your benefits at age 62 is 25%; at age 63, it is about 20%; at age 64, it is about 13.3%; and at age 65, it is about 6.7%, according to data from the Social Security Administration.
Lack of Social Security Knowledge
Often a lack of education about Social Security informs the decision to take out Social Security early, says retirement planner Steven Van Metre, of the California-based firm Steven Van Metre Financial.
“They don’t know any different,” Van Metre says. “They think, ‘I’m retired, and this is what my parents did.’ Very few people know that their Social Security benefit increases the longer they wait [to draw out].”
Women who took their 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 the 471 women surveyed by Harris Poll on behalf of Nationwide, only 10 delayed collecting their benefit until 70. They report an average monthly payment of $1,630 — or 59% more than if they had taken it early.
Women who don’t maximize their Social Security benefits can miss out on hundreds of thousands of dollars of retirement income.
“There are many reasons women take Social Security early,” says Shawn Britt, director of advanced consulting for Nationwide in a written statement. “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.”
Women Have Even More Reason to Delay Payments
On average, women have a longer lifespan than men, according to data from the Social Security Administration, giving them even greater reason to maximize retirement income by delaying Social Security. (Assess your own lifespan and your current retirement plans with an online retirement calculator.)
A woman turning age 65 today can expect to live, on average, until age 86.6, whereas a man turning 65 today can expect to live, on average, until age 84.3. And, one in four women reaches the age of 92.
Of the women aged 50 or older who are either already retired or plan to retire in the next 10 years, only 29 percent say life is better than before retirement and 28 percent say life is worse, according to the survey. 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.
“Life expectancy comes into play [when deciding when to take Social Security benefits],” Van Metre says. “It’s not just as simple as what works for today, but what is going to work in the long term.”
Since Social Security benefits are based on average earnings over the best 35 years of a career, women are often penalized for leaving the workforce to raise children or care for a parent, the survey says.
“Some women have to retire early to care for an elderly parent who has no long-term care coverage,” Britt says in the survey results. “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.”
Working With a Financial Advisor Can Help — And Other Ways to Explore Social Security Benefits
Often Van Metre meets clients who say they wish they had better understood Social Security, and how to best leverage it, before making a decision, he says.
“You really need to sit down with someone to understand whether it is in your best benefit to defer Social Security payments or not,” Van Metre says.
Women who don’t work with a financial adviser are nearly three times as likely than those who do work with an adviser to say their Social Security payment was less or much less than expected (37% vs. 13%), according to the survey. But only 33% of women work with a financial adviser.
“The benefit with meeting with a financial advisor is two-fold: you could have more income, or you can create income over a longer period of time,” Van Metre says.
If you think that working with a financial advisor is not for you, here are a few other ways to explore Social Security benefits: