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5 important Social Security issues for women
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Social Security plays an important role in overall retirement income. Unfortunately, many clients run the risk of oversimplifying Social Security and may not realize there is a strategy to getting the most out of their benefit. Financial professionals can add significant value by educating clients, particularly women, on their specific and unique planning options.
Marcia Mantell, founder of Mantell Retirement Consulting and author of What’s the Deal with Social Security for Women, and Rod Mims, SVP of National Sales at Athene USA, weighed in on five of the most common Social Security issues that affect women.
1. Married women should plan for the possibility of solo years.
For couples nearing retirement, it is still common for the husband to have outearned the wife and even more likely that she will outlive him. If he claims benefits before full retirement age (FRA), he locks in a lower benefit amount that will not bump up at FRA. This also results in a reduced survivor benefit if he passes away. Mantell emphasizes that couples should plan for Social Security together.
“Women don’t realize that the decisions their husbands make can have a long-term impact. When he claims early and locks in a reduced payment, then when he dies, assuming his benefit was higher, she gets less than she could have had.”
2. Homemakers/caregivers can receive a benefit.
Women are more likely than men to be in and out of the workforce caring for children or aging parents, making it more likely they might not qualify on their own for Social Security. “A woman may intellectually know that she hasn’t earned a benefit, but seeing that zero on her statement is a real showstopper,” noted Mantell. Despite that zero, a woman can receive a benefit in her own name on her husband’s (or ex-husband’s) record. This is up to half of the spouse’s primary insurance amount (PIA), which is the amount he is eligible for at his full retirement age — not half of what he is actually collecting.
3. Single divorced women can and should claim on their ex’s work record.
“When clients are estimating income in retirement, there can be a lot of confusion and apprehension around Social Security benefits and divorce,” shares Mims. An unmarried divorcee may not know she can claim a benefit on her ex-spouse’s record under certain circumstances (including that their marriage lasted at least 10 years and her ex is eligible for benefits). Even knowing this, she may hesitate to ask for her ex’s permission to claim a benefit, particularly after a difficult divorce, thinking it will impact the ex’s benefit amount. Luckily, her claim on the ex-spouse’s record is completely confidential — her ex won’t be notified or impacted.
4. Widows should be prepared for a reduced benefit.
When a woman’s spouse dies, she will continue to receive the higher of her benefit or her late spouse’s benefit. However, she still loses one benefit and simultaneously moves from filing taxes jointly to being a single filer. Since a widow’s retirement income is not likely to go down much, this change can have a big impact, likely increasing the amount of her benefit that is subject to income tax. In addition, her Medicare Part B premium (based on income and deducted from her benefit check) may rise substantially.
5. Teachers and other public sector workers should investigate their benefit with care.
The Windfall Elimination Provision (WEP) and the Government Pension Office (GPO) can reduce or even eliminate Social Security benefits for public sector workers who receive a pension in place of Social Security. However, women affected by this may still believe they can claim as a spouse or surviving spouse, which is often not true.
Mantel explains, “Many people have no idea about this integration between Social Security and public pensions, and it can be a really harsh situation for couples who were counting on her getting a spousal benefit.”
Determining the actual benefit can be complicated — the impact varies by state, and those who have also worked outside the public sector may find that Social Security statements do not reflect the WEP or GPO reduction.
As you work with clients to look holistically at retirement planning, it is important to understand the most common intricacies of Social Security, including those that may be specific to women. Mims encourages starting the Social Security conversation early.
“Not only can you help your female clients get the most out of their benefit,but you will get a clearer picture of the role Social Security will play, and therefore more accurately identify any gap between projected expenses and retirement income,” he explains. “Introducing a fixed indexed annuity or registered index-linked annuity into a retirement plan can help cover the income gap.”
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