What women need to know about Social Security
For many of us women, Social Security will be an important part of retirement. It’s important to know how it works so you can maximize it. Let’s get to it!
“The information encoded in your DNA determines your unique biological characteristics, such as sex, eye color, age, and Social Security number.” — Dave Barry
Basics of Social Security
As a reminder, once a worker has earned enough credits (40 quarters or 10 years of credited income, they are eligible for Social Security retirement benefits. The amount is based on your employment history, so those with higher wages paid more in and will receive greater benefits.
You pay the Social Security tax on the first roughly $133,000 you make (in 2019). If you earn more income than that, you don’t pay Social Security tax on the amount above that limit. This amount is indexed for inflation.
When you can start Social Security depends on what year you were born. Anyone after 1960 gets their Primary Insurance Amount (PIA) at a Full Retirement Age (FRA) of 67. Those born between 1955 and 1960 will have a FRA of 66 and some months.
If you start taking Social Security before your FRA and you’re still working,your benefit will be reduced for anything you earn above a certain amount (about $17,000 for singles.) Once you’ve reached your FRA, there is no penalty if you continue to work.
You can’t take your own Social Security benefits before age 62. You’ll be penalized for every month you take it early between age 62 and your FRA. If you wait until age 70 to start collecting your own benefit, however, you earn 8% per year in additional benefit amount. There’s no advantage to waiting past age 70.
Will Social Security be there when I’m ready to retire?
This is a good question, and there are a lot of urban myths about it!
The fact is that currently in the Social Security kitty (trust fund) there is enough money to pay out full benefits until 2034. After that, there’s enough to pay out about 75% of benefits.
Another fact is that we as a nation have been down this road before. We were in the same situation back in the 1980s. (It’s like we don’t learn from history or something. Weird.) One of the fixes was to increase FRA for everyone under a certain age. Back then benefits started at age 65.
Those who were close to taking Social Security didn’t have their FRA changed. They began slowly raising the age for younger people. Which is why we have the strange situation of some people retiring at age 66 and several months.
Moving back FRA could happen again. The original life expectancy for the average American back in the 1930s when Social Security began was 65. So setting the FRA at 65 could save a lot of money then! However, as we live longer, even 67 may be too soon to start payouts.
Another fix is to tax all income, not just $133,000 of it.
If you’re 60 or over, it’s highly unlikely that you will be subject to any of these changes. In the 1980s people in that age bracket were exempt. And those already taking Social Security will not have their benefits taken away (unless there’s fraud or something like that.) So the older population doesn’t have to worry. The AARP is a very powerful lobby!
Over 50s may not see changes, but they’re more likely to than those over 60. If you’re under 50, most likely you’re going to see some changes in Social Security that will apply to you.
What if I’m married? Any benefits?
There used to be a bit more room to play with benefits for married people. Congress closed some of those loopholes a couple of years ago. They would have helped lower-income couples. However, only affluent people knew about them and used them, so the benefits all went to the higher earners.
If there is longevity in both families, you’ll get the most benefit from both of you waiting until age 70 to claim.
If you start at FRA you get more money sooner. But if you both live past your late seventies/early eighties, you’ll collect more over time by waiting until age 70.
Frankly, that’s hard for a lot of people to do. All those scary headlines! (Remember, I told you not to watch the news.) The lower earner can take their benefit at FRA, or even a little earlier. The higher earner delays claiming. This works really well if one of you is receiving a much higher benefit than the other.
In general, the higher earner should wait to collect Social Security until age 70. Getting the extra 8% on the higher amount is a huge benefit that you should not give up if at all possible. In the past, it’s usually been the man (for hetero couples), although that’s changing. Since men have a lower life expectancy, they tend to die before their wives.
Once a spouse has died, the widow(er) steps into the higher benefit. They will no longer receive the lower check. No matter which spouse collected the larger amount, the widow(er) claims that higher benefit.
Having the high earner wait until 70 not only benefits the couple, it benefits the survivor with higher payments for life.
If there’s not much longevity, or there’s some kind of health issue that’s likely to shorten your life, then waiting until 70 might not work as well.
What if I’m divorced?
Our sister site has details about Social Security and divorce!
Briefly, as long as the marriage lasted at least ten years, you’re entitled to half your ex-spouse’s PIA benefit, if that’s bigger than yours. If you’ve washed that man right out of your hair for at least two years, it doesn’t matter if he’s collecting or not. When you’re at FRA you can collect. (Technically, you can collect before your own FRA, but your benefit is permanently reduced.)
But if you’ve been divorced less than two years, you can’t claim until your ex-spouse does.
And if you’ve been divorced more than once you can pick the highest benefit and claim on that.
What if I’m divorced and remarry?
If you get remarried, the Social Security based on your ex’s record usually ends.
What if I’m currently receiving Social Security disability?
That amount will magically convert to Social Security retirement benefits once you reach FRA. You don’t have to do anything.
Social Security the program has options for remaining solvent. We citizens have options to use Social Security for us to be solvent in retirement!
None of us knows when we’re going to die. There is an element to rolling the dice on timing the claiming. You could have longevity in your family but get hit by the proverbial bus when you’re 68, in which case your strategy of waiting until 70 wasn’t optimal.
By contrast, you could have an autoimmune disease that normally shortens life but you end up living to 103. In that case your strategy to claim early at age 62 and permanently reduce your benefits wasn’t helpful.
Be smart about it, but you won’t get it exactly right. So don’t stress over it too much, either now or when it’s time to make decisions.
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