Social Security: What professional women need to know

When Social Security was created in 1935, the typical American family had a working husband, a stay-at-home wife and a houseful of kids. Today, 40% of mothers are either the sole or primary source of income for their families — a figure that has nearly tripled since 1960.

As women’s role in the workforce has changed, so should their strategy for claiming Social Security benefits.

Unlike many wives whose sole eligibility for Social Security benefits is based on their husbands’ earnings records, professional women are often eligible for multiple Social Security benefits based on their own work records and also as spouses, divorced spouses or widows. Knowing when and how to claim each benefit can substantially increase their lifetime retirement incomes.

Even single women who have never married can benefit from creative claiming strategies. Here’s a summary of key Social Security claiming rules and how they apply to professional women, depending on their marital status.

THE BASICS

You can claim Social Security retirement benefits as early as age 62 or survivor benefits as early as age 60, but they will be permanently reduced compared to waiting until your full retirement age of 66 or older to collect.

Plus, if you collect any type of Social Security benefit before your full retirement age and continue to work, you will temporarily forfeit some or all of your Social Security benefits if your earnings exceed specified limits. In 2014, you lose $1 in benefits for every $2 you earn over $15,480.

But if you wait until your full retirement age to claim benefits, you have more options. Not only do the earnings cap restrictions disappear, but you can use one of the creative claiming strategies to maximize your benefits.

MARRIED WOMEN

If you’re married, you will want to coordinate your Social Security claiming strategy with your husband to maximize your lifetime household income.

If he has already claimed Social Security, you can file a restricted claim for spousal benefits once you reach your full retirement age and collect an amount equal to half of his full retirement age benefit. Meanwhile, your own benefit earns delayed retirement credits worth 8% per year for every year you postpone collecting up to age 70. Then you can switch to your own benefit — now worth 132% of your full retirement age amount — at age 70.

Or, if you are the higher earner and your husband has not yet claimed benefits, you might want to “file and suspend” at full retirement age, triggering spousal benefits for him while your own benefit continues to grow.

If you’re both close in age and have similar incomes, you can employ a combo strategy. One of you can file and suspend to trigger benefits for the other spouse, and the second spouse can file a restricted claim for spousal benefits. At 70, you each can each switch to your own retirement benefit.

EVERYONE ELSE

If you are divorced after being married for at least 10 years and you are currently single, you can claim Social Security benefits as if you were still married. That means you can collect reduced retirement benefits as early as age 62.

But if you claim early, Social Security will pay your own retirement benefit first and you would only receive a spousal benefit if it was higher than your own. The combined benefits would be reduced for early claiming.

But if you wait until your full retirement age to collect, you can restrict your claim to spousal benefits — worth half of your ex’s full retirement age amount — and allow your own benefits to accrue delayed retirement credits. As long as your ex is at least 62 years old, you can claim benefits on his earnings record even if he has not yet claimed Social Security — as long as you have been divorced at least two years.

If you are widowed, your retirement benefits and your survivor benefits represent two different pots of money. You can claim one first and switch to the other later if it would result in a higher benefit.

Survivor benefits are worth 100% of your deceased husband’s benefit if collected at full retirement age; less if collected earlier. But they never get any bigger. However, your retirement benefit increases by 8% per year for every year your postpone claiming it up to age 70. Crunch the numbers both ways to see which benefit you should claim first.

Finally, if you are single and can afford to delay collecting Social Security, you may want to file and suspend at full retirement age and accrue delayed retirement credits up to age 70.

In this case, the filing and suspending strategy also acts as an insurance policy. If your health or finances suddenly change and you need a chunk of cash, you can request a lump sum payout from Social Security in lieu of delayed retirement credits. Going forward, you would receive a monthly payout out based on your full retirement age.

(Questions about Social Security? Find the answers in my new e-book.)