Financial advisers looking to expand their roster of female clients would be wise to brush up on Social Security claiming rules. With women's longer life expectancies and the fact that they are more likely to live alone in old age due to widowhood or divorce, women represent more than half of all Social Security beneficiaries age 62 and older and two-thirds of all beneficiaries over the age of 85.
In September, I shared critical Social Security claiming strategies with advisers attending the Financial Planning Association's annual conference in Baltimore and was honored by the Women's Institute for a Secure Retirement with one of its 2016 WISER Hero Awards for my ongoing work explaining Social Security rules to consumers and financial advisers. WISER is an organization based in Washington that helps women take financial control of their lives.
It seems like a good time to remind my InvestmentNews readers about how careful claiming of Social Security benefits can improve financial resources for their retired clients, particularly women.
Today, more women work, pay Social Security taxes and earn credit toward a monthly retirement income than at any other time in our nation's history. But because many women take time out from their careers to care for children or elderly relatives, they tend to earn less during their lifetimes than men and often are not covered by private retirement plans.
In 2013, the median earnings of working-age women who were employed full-time year-round were $39,000, compared to $49,000 for men. That same year, the average annual Social Security income received by women 65 years and older was $12,857, compared to $16,590 for men. For unmarried women 65 and older, including widows, Social Security comprises nearly half of their total income, and for elderly unmarried women 85 and older, Social Security provides 90% or more of their income.
Women may be eligible for Social Security retirement benefits in several categories: as a worker or spouse of a worker; as a divorced spouse; as the caregiving spouse of a worker's minor or disabled child; or as a widow or surviving divorced spouse.
A woman can apply for worker benefits between the ages of 62 and 70, assuming she has worked a minimum of 10 years to be eligible for Social Security benefits; as a spouse at age 62 or later after at least one year of marriage; or as an ex-spouse at age 62 or later assuming she was married for at least 10 years, is divorced and currently unmarried. A caregiving spouse is entitled to spousal benefits, regardless of her age, as long as she is caring for the minor child of a retired or disabled worker until the youngest child turns 16 or for a permanently disabled adult child.
If a woman is eligible for both her own worker benefit and that of a spouse, she would be paid the higher of the two benefits in most cases. A spousal benefit is worth up to 50% of the worker's full retirement age amount.
The Bipartisan Budget Act of 2015 eliminated some Social Security claiming strategies that mainly benefited married couples and eligible divorced spouses. Now only people born on or before Jan. 1, 1954, retain the right to claim spousal benefits when they turn 66 while their own worker benefit continues to earn delayed retirement credits of 8% per year up to age 70.
Younger people will never have the option of choosing which benefit to claim. Whenever they apply for Social Security, they will be deemed to apply for all available benefits and will receive the highest amount either as a worker or as a spouse or ex-spouse. This new rule governing restricted claims for spousal benefits applies to both married couples and divorced spouses.
Divorced spouses can claim benefits based on their ex-spouse's earnings record even if the ex has not yet claimed Social Security. But to be “independently entitled” to a benefit as an ex-spouse, one must be divorced at least two years and each former spouse must be at least 62 years old. Other basic rules apply.
Anyone who claims Social Security before full retirement age will be deemed to file for all available benefits and is subject to earnings restrictions if they continue to work. In 2016, beneficiaries who claim any type of Social Security benefit before full retirement age — whether as a worker, a spouse or ex-spouse, or a survivor — and who continue to work forfeit $1 in benefits for every $2 earned over $15,720. A higher earnings limit applies in the year they reach full retirement age in the months prior to their 66th birthday. The earnings test disappears at 66 and benefits forfeited to the earnings test are restored.
Survivor benefits are available to widows as early as age 60 or at any age if they are caring for the child of a deceased worker, until the youngest child turns 16. (A child's benefit continues until age 18, or 19 if still in high school). Caregiving spouses of permanently disabled children can receive benefits for life.
Surviving spouses and surviving divorced spouses are not subject to the new deeming rules. That means they can choose to claim their retirement benefits first and survivor benefits later, or vice versa — whichever would result in a bigger benefit for the rest of their lives.
(Questions about new Social Security rules? Find the answers in my new ebook.)
Mary Beth Franklin is a contributing editor to InvestmentNews and a certified financial planner.