A single woman with no children, Karen Callahan puts together the financial pieces that will protect her for a possible long life on her own. A big piece of her puzzle: getting as much income from social security as possible.
Ms. Callahan, 67, of Marlborough, Massachusetts, will no longer accrue her benefits until she turns 70, at which time she will be eligible for $3,100 per month. If she claimed today, she said, her benefit would be permanently reduced to about $2,500.
The income from a web design company she owns covers her expenses for up to age 70, including a $375 monthly condo fee for her mansion. In excellent health and able to bench press 120 pounds, Ms. Callahan long enough to get more lifetime benefits from waiting than by claiming less for a longer period of time.
“Hell’s bells – I put the money in it and I’m going for the max,” she said.
For many older single women, as well as divorced women and widows, getting the most out of Social Security is crucial, experts say. Women generally live longer than men and are more dependent on Social Security as the primary source of retirement income. Also, their benefits are lower on average, partly because of lost income or part-time work during the years they take care of children and elderly relatives.
Still, many women leave significant amounts of this guaranteed source of inflation-adjusted money on the table, said Marcia Mantell, a retirement counselor in Plymouth, Massachusetts, and author of “What’s the Deal With Social Security for Women?”
“This safety net is incredibly important in old age,” she said. “Still, most women don’t understand how to fully maximize this benefit.”
Younger women with years of work ahead of them can begin to maximize benefits, Ms Mantell said, by seeking jobs with more money and asking for raises, which will “give you a higher benefit tomorrow.”
To start cutting through the swamp, it’s helpful to know the basics. A key concept is full retirement age – when a person is entitled to a full benefit based on their income. A person born between 1943 and 1954 can claim a full pension at the age of 66. The full retirement age is gradually being raised to 67 for those born in 1960 or later.
At the earliest, a person can claim at age 62, but the benefit is permanently reduced by a certain percentage for each month the beneficiary is entitled to before reaching full retirement age. For example, a woman with full retirement age of 67 will receive 70 percent of her full benefit by claiming at 62.
For each year that a beneficiary postpones the application between full retirement age and 70 years, the benefit increases by 8 percent; this is known as a deferred retirement loan.
For couples, including married same-sex couples, a less-earning spouse can claim a “spouse” benefit on her partner’s work record at age 62, but only if the other partner has started collecting. At full retirement age, the lower earner can receive a partner’s benefit that is 50 percent of the higher earner’s full retirement benefit.
A potential beneficiary can go online to check her Social Security Statement, which shows the record of her annual income and provides estimates, based on that record, of how much she will receive at full retirement age, or by claiming at age 62. or wait until 70.
if you are single
A single woman, either a woman who has never married or a woman whose marriage was short-lived, should delay applying for benefits as long as possible, experts say.
Let’s say a woman at age 67 receives a monthly allowance of $2,000. If she claims she is 62, she will receive $1,400. If she waits until age 70, her benefit will be $2,480 — a 77 percent lifetime increase in monthly income.
“For single women, longevity is their biggest risk,” said Ms. Mantell. “Even if she waits just a year after her full retirement age, she’ll get another 8 percent in benefits.”
Unless a person dies relatively early, a person will likely reach the age where their total lifetime benefits from delay exceeds the total lifetime benefits from earlier claiming smaller benefits, according to research by William Reichenstein and William Meyer. They are the directors of Social Security Solutions, a company that uses groundbreaking software to help individuals and couples maximize their lifetime benefits.
This probability is especially true for women. In 2019, the average expected lifespan of 65-year-old American women was 85.8 years, according to the U.S. Administration on Aging.
“Unless a single woman has a shorter-than-average life expectancy, she can maximize her benefits by waiting up to 70 years,” says Dr. Reichenstein, professor emeritus of investment at Baylor University.
A single woman may also be able to increase her benefits by delaying retirement. The Social Security Administration calculates monthly benefits by examining a beneficiary’s 35 highest-paid years. Even part-time work can replace any “zero” for years of care.
Ms Callahan said she expected her income from working longer to replace the years of low earnings when she started her business, as well as the years when she was a teacher and did not pay into the social security system, but instead receive a pension. (Public employees in about a dozen states are not covered by Social Security.)
Women who have lost their jobs, perhaps during the pandemic, and who have applied for reduced benefits early have a chance of a second chance. One option is to suspend their benefits at full retirement age and restart them later, perhaps at age 70.
“The deferred retirement credits largely offset the lower early claim payments,” said Ms. Mantell.
If you are divorced
Women are generally worse off financially than men after a divorce, but an ex-wife may be able to cushion the blow by claiming a partner’s or survivor’s benefit on her former husband’s work record.
“Many women who have cared for their children for years get divorced after decades of marriage,” said Michelle Petrowski, a certified financial planner in Scottsdale, Ariz., who specializes in divorce cases. “They haven’t had the opportunity to earn or give income to a 401(k), and they rely on this advantage.”
To qualify for divorce benefits, both spouses must be at least 62 years of age and the marriage must have lasted 10 years or more. Unlike a married woman, a divorced woman can claim benefits even if her ex-husband has not yet applied for benefits.
A divorced woman who waits until her full retirement age can claim a partner’s benefit that will be 50 percent of her ex-husband’s full benefit. The benefit is reduced by a certain percentage for each month she receives before that time.
That higher benefit can add up to a significant retirement kitten for a woman whose marriage ended decades earlier.
Consider a woman whose ex-husband takes full advantage of $2,400, said Dr. Reichenstein. Perhaps her own benefit at full retirement age is $800. If she claims a partner’s benefit at age 67, she will receive $1,200 per month, cumulatively at $259,200 at age 85. If she claims at age 62, her monthly benefit will be $830 — down from $30,000 at age 85.
A woman who has two or more ex-spouses with whom she has been married for 10 years can choose the highest partner benefit. And if one of the ex-spouses dies, she can switch to a larger survivor benefit. An ex-wife loses spousal support if she remarries.
An ex-husband will not be notified when his ex-wife applies for benefits on his state. His benefit will not be reduced, nor will his current wife’s partner benefit.
If you are a widow
According to the Social Security Administration, about 32 percent of all widows receiving survivor benefits in 2018 were between the ages of 60 and 70.
Increasing the “benefit” for widows in this younger range is essential, said Laura Mattia, a certified financial planner with Atlas Fiduciary Financial in Sarasota, Florida. “A widow can live another 30 years and will have to be financially responsible for herself,” she said.
A widow who claims survivor benefits at full retirement age is eligible for 100 percent of the benefits her late husband received or received. A widow can claim as early as age 60 (50 if she is incapacitated), but her benefit is permanently reduced for each month she claims before her full retirement age. A younger widow may qualify if she cares for the deceased spouse’s children.
A widow in her late 50s or early 60s who has little or no income of her own is likely to receive the largest payout by waiting to claim until age 66 or 67. dr. complicated if she has her own terms of employment.”
A widow who has an income-based retirement benefit has several options.
One option is to claim her own smaller pension benefit at age 62 and then switch to the larger survivor benefit at age 66 or 67. For example, at the age of 62 she creates an income stream and increases her survivor benefit.
But a woman whose retirement benefit will be higher than the survivor’s benefit at 70 should take the survivor’s benefit earlier, perhaps at age 60 or 62, and grow her own benefit, boosted by deferred retirement loans, experts advise.
“The most important rule for a widow is to compare her retirement benefit at 70 with her full survivor benefit, which would begin at her full retirement age,” said Dr. Reichenstein.
A man plays a big role in securing his wife’s financial security after his death, said Dr. Mattia. She often advises spouses to postpone their own benefit until the age of 70 in order to increase the survivor benefit.
“He may be thinking, ‘I’m not going to live that much longer,’ but she may live a much longer life in the meantime,” said Dr. Mattia.
Whatever strategy a woman uses, financial planners say Social Security should be just one part of a retirement income. When Ms. Callahan turns 70, she said, she expects to be able to pay for half of her expenses, including travel, with three things: profit from the sale of her business, assets in her individual retirement account, and possibly money from part-time work.
Social security covers the other half. Waiting until 70 years to collect, she said, will give her a much better chance “to live the lifestyle I want to live.”