by Eileen Ortega, CTFA
Take a look at this quote from a New York Times story on why older women face greater financial hardship than men:
“A recent AARP survey found that almost 30 percent of women over age 65 reported feeling very or somewhat worried about their current financial situations (compared with 20 percent of men that age).
“Despite gains in education, employment and earnings in recent decades, American women still face a rockier road to secure retirement than men. Yet they live longer and are more apt to encounter illness, disability and the eventual need for expensive long-term care. It’s a troubling picture.”
Given these statistics, it is no wonder that Social Security benefits are often a critical component of the long-term financial security for women. As such, it is important to understand how the Social Security program works and how you will benefit.
Social Security Benefits: Determining Your Eligibility
We often hear political pundits argue the case that the Social Security system is not long for this world, throwing blame on opposing parties as to why the program will be bankrupt sooner than we think.
Regardless of who’s to “blame,” the reality is that we need the system to survive. The program provides sometimes-critical benefits to women (and men) when deciding to retire or after a spouse’s death.
We spend our working years paying into the system with the trust that when the time is right, our contributions will carry us through the end of our lives. For many women, Social Security is the sole source of retirement income, and so the decision on when to begin receiving Social Security benefits goes hand in hand with the decision to retire.
For other women, Social Security is one component of a host of retirement income sources, and so this decision is much less critical, hence giving the option to defer the start of benefits.
So therein lies the question: When is the right time to take Social Security?
Before you make this decision, you’ll want to go through the exercise of understanding your finances. Knowing your annual income and estimated expenses is the first step to determining the right time to start your Social Security benefit.
Your financial advisor can be extremely helpful in illustrating the pros and cons of starting or delaying benefits to help ensure that you weigh all factors in making this decision.
Per Social Security guidelines, the following requirements apply:
Individual Benefits
- You are at least 62 years of age
- You can continue working and collect benefits, subject to certain earnings limits.
Widow Benefits
After a spouse has died, there is often a worry about the loss of income, especially when the deceased spouse was the primary provider. If that is your concern, Social Security provides access to your spouse’s benefits to ensure you will not be without financial support.
Whether your spouse had been collecting benefits already or was approaching the eligible age to receive benefits, rest assured you are entitled to apply if:
- You are at least 62 years of age
- Your deceased spouse was entitled to or was collecting benefits
- You were married for a minimum of one year
There are exceptions to the above—for example, in cases of disability (you can apply for benefits at age 50), you have young children, or your spouse’s death resulted from an accident.
Divorced Spouse Benefits
If you were married for at least 10 years before divorcing, you are entitled to receive benefits based on your ex-spouse’s employment record if:
- You are unmarried
- You are at least 62 years of age
- Your benefit is less that the benefit of your ex-spouse
When to Apply for Social Security Benefits
Once you have qualified under one of these scenarios, the next decision is on the appropriate time to begin to receive benefits. The following are considerations in this decision.
Early retirement age (62): While you can apply for benefits beginning at age 62, this is considered “early,” and the annual benefit will be reduced from the estimates given for “full retirement age” (see the next section). If Social Security income is critical to your financial well-being, the answer is simple: Apply early.
If you will not rely on this benefit to support your financial needs and it is merely additional income, then you can weigh the benefit of waiting. Typically, you realize an approximate 8% increase for each year you wait. However, once you reach age 70, the incentive for delaying benefits is eliminated.
Full retirement age (67): For those who can afford to delay, you can expect a significantly higher monthly payment. If you have a long life expectancy, it may be worth delaying your benefit. Other factors to consider are the financial impact over your expected lifetime and, ultimately, the benefit amount you derive from waiting.
This amount can equate to an increased inheritance for heirs, an enhanced lifestyle, or simply the peace of mind that often comes with a higher annual income. Assuming you invest the benefits, the power of compounding can result in a significant amount of growth over your retirement.
Again, whichever age you decide, I strongly recommend weighing the pros and cons before making this irrevocable decision. Your financial advisor should also have the tools and a comprehensive understanding of your situation to give you their best advice.
A caveat here is that some folks simply want their benefits as soon as available, ensuring that they avoid the risk of dying before accessing what they have contributed.
How to Apply for Social Security
The final, and perhaps easiest, step is applying for Social Security benefits. No more do we have to apply for benefits in person at our local Social Security office. The mere dread of waiting in line only to be frustrated had made application a painstaking process. With the dawn of technology, you can now apply online at www.ssa.gov.
To ensure the easiest process, I would suggest establishing an online account now versus waiting until you are ready to apply for benefits. By doing so, you can utilize the tools available to calculate estimated benefits, confirm your reported earnings, update your contact information, etc. In addition, you can check the status of your application for benefits once you have applied.
When you start the application, you answer a series of questions, and the system will allow you to skip those you are unsure of to return to later. You can also save a draft of the application and return to it when you are ready.
Once you have completed the application, you will sign and submit it, certifying that the information provided is correct and truthful.
Depending on the Social Security Administration’s caseload, the turnaround time to receive a response is six to eight weeks. At that point, you receive a letter confirming the benefit amount and start date.
If you change your mind and want to delay your start date, you can withdraw your application within 12 months. You will be required to repay any benefits received.
If you cannot access the online resources, or you are more comfortable with an offline application, you can contact your local Social Security office to apply over the phone. You can locate the closest office to you online or by calling the Social Security Administration at (800) 772.1213 between 8 a.m. and 7 p.m. Monday through Friday.
While this process can feel overwhelming, beginning the discussion around the “when” with your financial advisor sooner than later will help make things much easier when the time comes.
If you have questions about how to move forward financially, you may want to talk with a financial advisor who works with surviving spouses. Our fiduciary wealth management firm in Ponte Vedra Beach, Florida, offers a complimentary consultation. We invite you to schedule a consultation today.