Social Security benefits can easily total over $1 million dollars during a typical retirement and for high wage earning couples may reach $2 million dollars over a long retirement. Benefit rules are not complex, but not intuitive either. Many have a misunderstanding of their benefits and how to best claim them. For women, the decision of when they and their spouse start to receive Social Security benefits is very important.
We have three learning objectives for this post.
- To understand the impact on your benefits of when you choose to claim.
- To understand why maximizing benefits is especially important for women.
- Learn how age and benefit level differences for spouses can be used to your advantage.
Resources to learn more are available at the websites below:
Women tend to have longer life expectancies than men do. This fact creates stress on a woman’s retirement income plan, especially if she finds herself “suddenly single” through divorce or the death of her spouse. If you are married, planning ahead to make the right Social Security claiming decision in coordination with your spouse may prove to be an important factor in your long-term retirement income plan.
Each person eligible for benefits has earned credits based on their work history. The average monthly earnings of your most highly compensated 35 years of employment determine your benefit at “full retirement age” (FRA), which is between age 66 or 67 depending on when you were born. You can claim your benefit as early as age 62, but doing so will reduce the amount of the benefit compared to waiting until full retirement age. The reduction in benefit is 25% at age 62, but it is reduced less and less as you get closer to your full retirement age. If you wait past FRA to claim your benefit you will receive “delayed filing credits” for each month you wait out to age 70. At age 70 your benefit will be maxed out at as much as 32% more than at FRA. See the table below from to see an example of the effect of claiming early or waiting past your full retirement age to claim your benefit.
So, the big question becomes “when should I claim?” For single individuals the decision is pretty simple. If you believe your life expectancy will be at least to age 80, delaying filing is usually a good idea. Even though you’ll collect benefits for less time, the increased monthly benefit and inflation adjustments will add up to more than filing early but receiving the reduced benefit. Of course, our lifespan is an unknown variable when we have to make these decisions. Using your personal health condition and family history of longevity to make an educated guess is all we have to go on. It is also important to note that the life expectancy for a 65 year old is 85, meaning that at least half of 65 year olds live to 85 or beyond.
For married couples the analysis is a bit more complicated. Differences in benefit levels, ages and life expectancies creates dozens of scenarios to consider. Some general rules of thumb are that the spouse with the highest benefit level should delay filing to at least full retirement age, and perhaps as late as age 70. The reason for this is that the higher of the two benefits will be kept by the surviving spouse when the first spouse dies. Social and economic trends seem to most commonly have the male spouse with the higher benefit and the oldest in the relationship. He, of course, probably has the shorter life expectancy as well. This means that in the majority of relationships the woman ends up receiving her deceased spouse’s benefit for the rest of her life. Maximizing this larger benefit may be an important factor in your retirement income plan.
Why do these socio-economic trends exist? Obviously, there are exceptions, but the theory is that women marry men that they are not only attracted to, but who can provide financial security later in life. Men tend to have higher incomes later in life so women tend to look for older men. In addition, men generally are more physically attracted to younger women. When it comes to Social Security benefit levels, again there are exceptions, but men often have the higher benefit level. This is often due to women taking time away from the workforce to raise children or care for aging parents. There is also the wage disparity problem where women tend to earn less doing similar job roles. Don’t pass judgment on the author here! The trends are trends, even if they are not justified.
Of course, we don’t recommend making this important decision on a whim or a guess. We recommend you download our complimentary Social Security Guide below and contact us for a no obligation discussion and Social Security analysis based on your personal situation.