The phrase “Hindsight is 2020” sure has taken on a new meaning this year. If anyone had told me on New Year’s Day 2020 what was in store, I never would have believed them. I’m almost afraid to turn on the news these days, because all they talk about is bad news about the virus or politics. It makes me feel like Paul Simon, when he sings “Hello darkness, my old friend, I’ve come to talk with you again.” It’s been a brutal year so far, and it’s not over yet!
Covid-19 has impacted all of us, and for many women it has pierced through their savings as well as their confidence in their ability to retire comfortably. A study from Transamerica Retirement Studies showed that one in every four women are even less confident than they were before COVID-19, while four in every five women are concerned whether Social Security will be there for them when they are ready to retire.
One of the first big decisions we’re faced with as we approach retirement is when to claim our Social Security benefits. Timing is crucial. You can start social security benefits as early as age 62—but waiting a few years or delaying your benefits can give you greater income for life.
For many single women, it makes sense to delay instead of claiming benefits early at 62.
However, each person is different and it’s important to thoroughly analyze all the options.
- Women typically live longer than men, and those extra years can play an important role in boosting monthly income. Let’s say at full retirement age (currently age 66, for those born between 1943 and 1954) your estimated monthly benefit is $1000. If you claim your benefit at 62, your monthly benefit is reduced to $750 a month (which is 25% less).
- Let’s imagine that at age 66 you’re entitled to an annual Social Security benefit of $12,000. If you wait a year to claim it, you’ll forgo the $12,000 for the first year, but the following year, at age 67, you’ll receive an annual benefit of $12,960 (8% more). An amount, by the way, that is adjusted for inflation each year for the rest of your life. It might help to note the percentage Social Security might represent in your retirement income (for most, 50% to 80%).
- A single woman who waits to claim benefits at age 70, will increase the amount she’ll get in her lifetime. The difference on average is 18%, according to research by economists from Stanford University and George Mason University. For some women that could translate to $70,000 in additional lifetime income or more. This also will allow you to delay drawing income from your portfolio and give it more time to grow.
For married women: What’s the rule of thumb for couples?
First, consider the ALAP (as long as possible) and ASAP (as soon as possible) rules. They essentially mean that the spouse who has the higher income will wait for as long as they can, while the spouse who has the lower income takes social security as early as possible.
It often makes sense for the higher earner, let’s say it’s the wife, to wait until age 66, or even age 70, to claim benefits. Doing so increases her benefits throughout her lifetime and if she dies first, throughout the lifetime of her husband as well. The survivor benefit would step up to that of the deceased spouse. If the earnings gap between the husband and wife is substantial, he might want to think about claiming his own reduced benefit at 62. If he has retired or has limited income, he should request a spousal adjustment once his wife claims Social Security.
For women who are divorced or widowed, if you don’t remarry and you are 62 years of age or older, you can file for spousal benefits whether or not your ex-spouse has filed, as long as you have been divorced for at least two years. To qualify, your ex-spouse must be entitled to benefits and the benefit you would receive on your own work record must be less than what you’d receive based on your ex-spouse’s record. There’s a Social Security Administration web page that explains these requirements in more detail.
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What’s your best advice for couples?
I’d encourage anyone, especially couples who are approaching retirement age, to seek guidance about how to begin claiming your Social Security benefits. It’s always good to look at the Social Security benefits collectively. The right question here is not, How much will I collect? but rather, How much will my spouse collect? In other words, the time when a spouse files could affect the benefit of the other spouse.
For couples, the decision of when to start will affect how much your spouse will collect for the rest of their life.
It helps to talk with professionals who understand your personal situation as well as the Social Security rules.
If, after you’ve considered all the factors, you believe that claiming your benefits before age 70 makes sense for you, you shouldn’t feel bad about not waiting. Social Security was created as a safety net. And it’s only valuable if you use it when you need it.
Arlene Brown, ChFC, EA, CDFA, CLU
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*Advisory services offered through Paul Winkler, Inc. (‘PWI’), an advisory firm registered in the State of Tennessee. PWI does not provide tax or legal advice: please consult your tax or legal advisor regarding your particular situation. This information is provided for informational purposes only and should not be construed to be a solicitation for the purchase of sale of any securities.
