The smart way for women to think about claiming Social Security

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Clients often believe that there is no difference between retirement planning for men and women. However, women’s longer life expectancies (86 years compared to 84 for men) makes it more likely that they will run out of money before they die without proper planning. The planning needs and strategies for a woman should focus more heavily on longevity and creating lifetime income streams after her spouse has passed away. (In this article, we discuss planning strategies assuming a male-female marriage; however, many of the strategies discussed can also be applied to same-sex married couples.)

Social Security benefits are a lifetime income stream that replaces, on average, about 40% of pre-retirement income. Many clients plan to claim Social Security benefits when they or their spouse retire. However, strategies regarding the type of Social Security benefit that can be claimed, and the timing of the claims, should be carefully planned. Claiming too early may cause the income stream to be insufficient for your client’s needs, while claiming too late will cause the income to be lost. The program’s rules related to claiming benefits can be found here.

There are three types of Social Security benefits: a person’s own benefits stemming from their work history, their spousal benefits, and surviving spouse benefits for widows and widowers. Modern trends for women show that the rates of working women have risen over time, so more women can claim their own Social Security benefits. However, average benefits for women are lower than men’s benefits because earnings for women are lower and women are more likely to pause working for a few years to focus on childcare. In addition, marriage rates and the average length of marriages have fallen over time, which impacts a woman’s ability to claim spousal and survivor benefits.

Here are some conversations to have with your female clients.

Start planning now. A strategy for claiming benefits can and should be developed as early as 10 or 15 years away from retirement.

“Just because you can doesn’t mean you should!” Benefits can be reduced by up to 30% if a woman files for Social Security when she is first eligible. Patience is a virtue here; educate your clients about the benefit of delaying their claim. Even after they reach the age of retirement, if they continue to delay, they will receive 8% more per year delayed (up to age 70). That bump in the benefit amount can be critical in their later years.

Single women. For a single woman who has never married or was married for less than 10 years, the claiming strategy rests on her expected longevity. If she is in good health, explore whether she can delay claiming benefits until age 70 so that her benefits will be higher. If she is in poor health and may not live until her full life expectancy, it may make sense to claim before 70. If she delays her claim until age 70, the client must develop other income sources to secure her in her early retirement years.

Married working women. Married working women are eligible to claim their own benefits and spousal benefits (and survivor benefits if they become widowed, discussed below). This makes planning much more complex. If both spouses are alive, consider the incomes earned by the spouses: the lower earning spouse (say, the wife) can claim their own benefit earlier, leaving the higher benefits to grow and be claimed by the other spouse (the husband) at age 70 (assuming he is in good health). His higher benefit will make her eligible to claim her spousal and survivor benefit later on. This is even more advantageous if there is a large age difference between the older, higher-earning spouse and the younger, lower-earning spouse.

Stay-at-home wife. Even if a woman has never worked or worked for fewer than 10 years, she can claim both the spousal benefit and survivor benefit if she becomes widowed. As mentioned above, a client who plans to delay claiming her benefits must develop other income sources. This might include taking out a life insurance policy on her husband’s life or transferring income-producing assets into her name, such as rental income from a property or dividends from a brokerage account. In addition, remember that the income-earning spouse must start claiming benefits in order for the spouse to claim spousal benefits.

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Widows. Widowed women can claim survivor benefits, which can be up to 100% of the deceased spouse’s benefit, depending on whether they can claim their own benefit first and if the spouse was claiming benefits. Depending on income levels, the widowed partner may be able to claim the decedent spouse’s benefit, while delaying their own benefit.

Divorced women. Divorced women who were married for at least 10 years can claim a spousal benefit at age 62 as long as they are not remarried, and the benefit is higher than their own benefit. They should understand that, if they remarry, they will lose the benefit but can claim under their new spouse. For women who plan to remarry, this could cause an issue and the loss of income needs to be mitigated. If your client is thinking about divorce, it may be worthwhile to consider delaying the divorce until the 10-year mark. They should also be aware that a spousal benefit can’t be claimed within two years of divorce. Additionally, as part of the divorce proceedings, they should not waive their rights to spousal benefits.

While these Social Security claiming tips provide a general framework for planning, it’s best to run the numbers with your female clients to get an accurate picture of how the benefits can create a foundation for lifetime income.