At Keil Financial Partners, we’re devoted to providing clients with the best services possible. That’s why we’re always keeping up with the latest retirement news and trying to learn everything we can about retirement planning, social security, and tax planning. After all, we believe that the more you know about your retirement options, the better decisions you’ll make.
Recently, we came across a great article called Making Smarter Decisions is Critical to Mitigating Retirement Risks Women Face by Marcia Mantell. This article has some great insight into why social security isn’t the same for women and men and how women can implement planning strategies to maximize their benefits.
To learn more about women’s needs when planning around social security, we had the opportunity of chatting with Marcia Mantell on one of our latest episodes of Retirement Revealed with Jeremy Keil. During our conversation, Marica shared some interesting statistics along with planning tips for women and their partners so they can make smarter social security decisions that will help them do even better with their financial, and retirement, pictures.
Why Women Need to Plan
While an increasing number of women are becoming more involved with their family’s finances, sometimes traditional societal gender roles can make it challenging for women to take the reins with their family’s finances — even though their finances impact them, too. In fact, a couple’s finances arguably impact the women more, since women tend to be around longer.
Because women will have to live with the results of their financial decision-making for a longer time horizon, it’s important that they take an active role in the planning process to make sure that the decisions being made are what’s best for the family, and for both spouses. This planning isn’t about questioning the planning your husband may have been doing, but is instead about understanding the implications of the financial decisions that are being made.
One of the big decisions that can have a major impact on your future is social security. Marcia Mantell identifies three things that could be working against you and the social security benefits you could receive: The wage gap, the mom gap, and the widow gap.
The Wage Gap
The wage gap should come as no surprise to most people. It’s a well-known fact that even in this day and age, men tend to be paid higher than women, even when they are doing the same job. This gap is even larger for women of color, who tend to make even less than white women. According to Marcia, white women make on average 82 cents on the dollar while African American and Hispanic women tend to make 63 cents on the dollar.
Because of this, women are consistently making less throughout their careers, which means that there’s less money to spend along the way — and less money to save for retirement.
Your social security and the amount you get paid out from it is based on how much you earn throughout your working years. In order to calculate your benefit, social security does a calculation based on your personal earnings. So, when you’re earning less all the way through your career, your calculated benefit at retirement is also going to be lower.
According to Marcia’s calculations, women receive at least 10% less than men, on average, from social security as a result of this wage gap. So, while you may be aware of the potential income you’re losing out on now as a result of the wage gap, it’s also important to recognize that you’re also losing out on potential income in your retirement years as a result, too.
The Mom Gap
When women become mothers, it’s common for them to bounce in and out of their careers because of family needs. This can often be seen by mothers taking time out of the workforce for the first five or so years of their children’s lives, or to care for family members in need.
During the time when moms are out of work, they’re earning zero dollars. And when you’re making zero dollars for multiple years, those no income years will go into social security’s calculations for your benefits and decrease the amount you can get.
Even after that, it’s common for women to return to work at a lower salary, and then have other things come up in life like having to take care of a family member that can force them to leave work again. And when women stop work to care for an elderly family member, this tends to be during their highest-earning years, making them lose out on even more income.
Because of this, moms tend to have significantly reduced earning years over their working lifetimes — which ultimately reduces their benefit payments.
So, when making the decision to stay home, be sure to not only think of the in-the-moment impact and whether you can manage on one paycheck, but also consider what those ramifications will be later on when retirement comes and you need that social security to help support you.
We believe that as long as you go into this mom gap with your eyes open and are proactive about planning around it, you can likely make it work for you and your financial picture. It’s when you fail to think ahead about the impacts of this gap that you can be caught off guard once retirement comes around and realize that your benefits are much less than what you were expecting.
According to Marcia’s calculations, the mom gap can result in a 14% loss in social security benefits, on average. In fact, you can lose 10% of your social security by just staying out of work for five years — and if you’re gone for longer, or are in and out of the workforce, it can end up being closer to 25% to 30% less in social security income.
The Widow Gap
The widow gap is the gap that can result when the wife outlives the husband. Traditionally the husband is a couple years older and likely has a larger benefit. When the first person dies the surviving spouse is left with just one social security benefit, and may just be living off a benefit that was determined from the decisions her husband made years earlier.
Social security has some rules and benefits put in place to protect widows after their spouses pass. With this rule, if your husband dies first and was bringing in more social security than you, you can then step into his shoes and receive his higher payment instead — however, you can only receive the amount that your husband was claiming.
This means that if your husband claims his social security at age 62, which is the earliest you can claim it, that locks in a permanently reduced income benefit that will also become your benefit down the line should you become a widow.
Even today, one-third of men claim social security at 62. By doing that, they’re locking themselves in 25 to 30% of permanently reduced income from social security because they couldn’t wait to claim it.
So, when your husband decides to claim his social security is also a big decision for both of you — not only because it will be the amount he is receiving to help support both of you, but also because it will likely be the amount you have to live on down the line if you’re the surviving spouse.
This is where planning can be incredibly helpful.
If you plan ahead for your social security benefits and can run the numbers to see the implications of the choices you make, you will likely make better decisions for today and tomorrow. There are multiple effects that come with these decisions, and that’s why meeting with professionals who have walked others through the process and who can help you to do the math can be incredibly helpful.
According to the numbers, the difference in what you could receive as a widow could be 77% higher depending on whether that first person takes it at 62 or if they wait until they are 70.
While the reality for most people is that they can’t wait until 70, simply looking at your options and looking at how you can maximize your decision-making process can make a big impact on your financial and retirement picture both individually and together as a couple.
How to Make Smart Decisions
Now that we know all the different factors that could impact a woman’s social security earnings, what are some solutions that Marcia has discovered?
Marcia’s number one recommendation for anyone looking to take control of their social security is to go onto social security’s website (ssa.gov) and to set up a private account. With an account, you can get your own statement and see what social security has already projected for you based on your income so far. This information will help you make smart and knowledgeable decisions going forward.
Secondly, if you are part of a married couple, Marcia stresses the importance of talking to each other. While talking finances isn’t always easy, especially when you’re busy with life, having these conversations can make a big difference for both of your retirement pictures.
For women who are divorced or widowed, it’s also important to recognize that there are different benefits and options for you than for a woman who is currently married. For example, one thing that many divorcees don’t realize is that if you’re divorced, you can likely claim on your ex so long as you were married for 10 or more years.
Many widows also don’t realize that they have an important decision to make about when they want to take their spouse’s social security. For example, they can take a lesser retirement benefit early and then switch to their spouse’s higher benefit later on. Or, they could do it the other way by taking a survivor benefit first and letting their own benefit grow until age 70 when they get the maximum benefit amount.
No matter which way it works out, there are some important decisions to be made that can drastically change your financial picture. That’s why it’s important to know about these options and benefits and to plan accordingly with someone who knows what they’re doing.
Finally, Marica recommends to not focus on how you can break even with your social security. She says that social security has one main purpose: to deliver a modest amount of monthly income for you and your spouse. In retirement, it’s a monthly income, not an investment. Social security is insurance in the way that it will help you live in retirement by providing a modest paycheck. That’s why it isn’t about breaking even, it’s about getting the best amount that works for you throughout your retirement.
Between factors like the wage, mom, and widow gap, there are many different circumstances that can impact not only your social security but also all the other pieces of your financial and retirement puzzle. That’s why you can’t just plan based on what other people have done, but instead, plan for you and your unique needs. If you’d like to learn more about your retirement and social security picture, please feel free to reach out to us here — we’re always happy to help!
Thrivent and its financial professionals do not provide legal, accounting, or tax advice. Consult your attorney or tax professional. Representatives have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration.