More than four in five women elect to take Social Security benefits before their full retirement age, locking in lower payments for the rest of their lives. And those lives could be longer than ever, according to recently updated mortality tables.
Only 15% of women waited until their full retirement age, currently 66, to claim Social Security benefits, according to a recent online survey conducted for Nationwide Financial. And a mere 3% of women waited even longer to collect Social Security benefits, even though delaying benefits until age 70 can result in a 32% increase in monthly payments.
“Some mistakenly believe taking benefits earlier will result in more money over the long run, while others may have been forced into retirement early and need the money,” said Shawn Britt, director of advance consulting for Nationwide.
Eligible workers and their spouses can collect Social Security retirement benefits as early as age 62, but they will be reduced by 25% for the rest of their lives. The longer someone lives, the more beneficial a later claiming decision can be.
“If you have the ability to sacrifice a little for a few years, it is worth it and will result in less chance of outliving other income sources,” Ms. Britt said.
(More: Social Security tax rules are a mind-bender)
Retirement, particularly for women, can last a very long time. The average life expectancy for a 65-year-old woman is 86 and one in four women are likely to reach age 92. But recently updated mortality tables of private pension plan participants compiled by the Society of Actuaries show people are living even longer. Longevity for 65-year-old women rose 2.4 years to age 88.8 in 2014 from 86.4 in 2000, according to the SOA. The average longevity among 65-year-old males also increased by 2 years, to 86.6 this year from 84.6 in 2000.
More than a quarter of respondents to the Nationwide survey said life was worse in retirement due to a lack of income and higher-than-expected expenses. The survey included a representative sample of 471 women age 50 or older who are either retired or who plan to retire in the next 10 years.
Survey respondents who did not work with a financial adviser were nearly three times as likely as those who do work with an adviser (37% vs. 13%) to say their Social Security payment was less or much less than they expected.
“Women who work with an adviser are more likely to receive good advice on optimizing Social Security,” Ms. Britt said. But because only a third of the women in the survey say they work with a financial adviser, there is clearly room for improvement.
Another insurance company, Allianz Life Insurance Company of North America, recently
launched a public awareness campaign to educate Americans about their Social Security claiming options and to encourage them to consult a financial adviser for guidance on the best claiming strategy.
Allianz also provides Social Security tools for financial professionals — including reference sheets, a Social Security web tool and case studies — to help customers create an appropriate retirement income strategy.
“It is so important that baby boomers who have not yet filed for Social Security benefits understand the possibilities since benefits vary depending on starting ages and filing strategies selected,” said Deb Repya, senior director of Allianz Life advanced markets.
Raising public awareness about Social Security benefits is also good for business. Both Ms. Britt and Ms. Repya noted that insurance products, such as annuities, can play a vital role in an overall retirement income strategy by providing clients with an alternative source of income, allowing them to delay collecting Social Security until benefits are worth more later.
Although Social Security provides survivor benefits when one spouse dies, the drop in household income can still be substantial. Life insurance, they both noted, can serve as an income replace tool for older clients.
(Questions about Social Security? Find the answers in my e-book.)
