Why it's important for women to ensure that they get the most from Social Security.
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Social Security is an important element in retirement income. For women, who live longer than men and who are also more likely to be single and depend on one income when they are older, it is especially important.

Consider these stats: Women make up 57% of all Social Security beneficiaries age 62 and older, and 68% of all beneficiaries age 85 and older. In 2012, only 45% of women aged 65 or older were married, compared with 75% of men, according to U.S. Census statistics.1

Not only do women tend to take time out of the workforce to care for children or aging parents, but they also earn less than men, so their overall career earnings and savings may be lower.

This is why it’s important for women to ensure that they receive the most from Social Security. Here are four things to keep in mind.

1. It can pay to delay

As you approach retirement, you need to decide when to begin taking Social Security. You can start receiving reduced benefits at age 62, rather than waiting until your full retirement age (FRA), which ranges from 65 to 67, depending on your birth date. (See your full retirement age.)

If you take Social Security benefits before your FRA, the amount of your monthly benefit payment will be reduced. If you delay collecting benefits beyond your FRA, the amount of your monthly benefit will increase until you reach age 70.

Consider the following example. Colleen’s FRA is 66. If she begins taking benefits at age 62, she’ll receive $1,500 a month. If she waits until age 66 (her FRA) to collect, she will receive 33% more, or $2,000 a month. If she waits until age 70, her benefits will increase another 32%, to $2,640 a month.2 If she were to live to age 89, her lifetime benefits would be about $47,000, or 13% greater, because she had waited until age 70 to collect benefits.3 (Note: All figures are in today’s dollars and before tax; the actual benefit would be adjusted for inflation and would possibly be subject to income tax.)

To help you determine when you should begin taking Social Security, consider factors such as family longevity, how much you’ll need for retirement, and other income sources. For some, especially those who are not able to work, filing for Social Security benefits at age 62 is a necessity. If you can delay taking benefits until your FRA or age 70 and you live into your 80s, you could benefit from doing so. If you have a savings shortfall, consider delaying retirement by a few more years. However, if you’re considering early retirement and have adequate income from investments, a 401(k), pension, or guaranteed annuity, you may want to hold off receiving Social Security benefits.

Bottom line: If you’re in good health, and have sufficient savings, it’s wise to wait until your FRA to begin taking Social Security.

2. You can receive Social Security and keep working

You can collect Social Security even if you are still working or earning self-employed income—with a few important caveats. If you collect before your FRA, you can earn up to $15,480 without any impact on your benefit. However, if you exceed the earnings limit before your FRA, your benefits will be reduced by $1 for every $2 you earn over $15,480. In the year in which you reach FRA, $1 is deducted for every $3 you earn above $41,400 (the limit in 2014). Once you reach FRA, there is no penalty for working and claiming Social Security at the same time and your benefits will not be adjusted for earned income. Also, once you reach FRA, the benefit would be adjusted up to account for benefits withheld due to earlier earnings.

That is only part of the story. If you continue to work, you don’t have to live on your savings, and it gives you the opportunity to keep building retirement savings. Keep working and you can make “catch-up” contributions to a 401(k) or other tax-deferred workplace savings plan, a health savings account (HSA), and an IRA, even if you are collecting Social Security. Catch-up contributions enable you to set aside larger amounts of money for retirement. For example, the limit on pretax contributions to 401(k) plans is $17,500 in 2014, but if you are age 50 or older, you can invest an additional $5,500 each year. Note: These limits are subject to cost-of-living adjustments (COLAs).

3. You have choices when you are married, divorced, or widowed

If you are married, you can generally receive Social Security payments based on your own earnings record, or collect a spousal benefit of up to 50% of your spouse’s full Social Security benefit. The benefit will be reduced if you start taking it before your FRA. To begin collecting Social Security spousal benefits, you must be at least 62 years old, and your spouse must also have filed for benefits.

If you are divorced, you may be eligible to receive benefits based on your ex-spouse’s work history—provided you were married for at least 10 years and remain unmarried. Payments are equal to 50% of your spouse’s FRA benefits if you start collecting at FRA—less if you take Social Security early. If you are expecting a Social Security payout based on your own work history, but your ex-spouse’s benefit is higher, the difference will be added to your benefit.

If your ex-spouse dies, you may be eligible to receive a survivor benefit based on your former spouse’s earnings record, if it’s higher than your monthly amount, even if you remarry after age 60. However, if you remarry before age 60, you cannot claim a survivor benefit. The rules are complex; therefore, it’s important to read the Social Security "Retirement Planner: If you are divorced."

If you are a widow, you are eligible to collect your spouse’s Social Security payments as a survivor benefit. Waiting until your FRA to take payments enables you to receive 100% of the benefit—less if you collect before your FRA. You can elect to receive the larger of the two benefits: a monthly check based on your work history or the survivor’s benefit. The rules for survivor benefits and regular Social Security benefits differ. For more information, read Social Security’s "Survivors Planner: How Much Would Your Benefit Be?"

4. Social Security may not cover all your needs in retirement

The Social Security Administration’s statistics for women4 are eye opening:

  • The average annual Social Security income received by women 65 years and older is $12,520, compared with $16,398 for men.
  • For unmarried women—including widows—age 65 and older, Social Security composes 50% of their total income. By contrast, Social Security benefits compose only 35% of the income of unmarried elderly men, and only 30% of the income of elderly couples.
  • Almost 50% of all elderly unmarried females receiving Social Security benefits rely on Social Security for 90% or more of their income.

These numbers speak of the need to maximize your benefits and to save as much as you can in other ways for retirement.

Make an informed decision

Take the time to understand exactly how much income Social Security will provide. Estimate your future benefits, based on different scenarios, and then create a strategy that maximizes your monthly Social Security payments. It can make a difference.

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1. U.S. Census Bureau, Statistical Abstract of the United States: 2012, "Marital Status of the Population by Sex and Age: 2010."

2. The hypothetical examples were calculated by Strategic Advisers, Inc., based on Social Security payout tables, as of May 2014. Strategic Advisers, Inc., is a registered investment adviser and a Fidelity Investments company. All lifetime benefits are expressed in present values, calculated using an inflation-adjusted discount rate and life expectancy of 89. The numbers are sensitive to, and will change with, the discount rate and life expectancy assumptions.

3. Lifetime benefits are determined by calculating the present values of the Social Security payments over time. The present values are calculated by discounting the Social Security payouts by an inflation-adjusted rate of return. The illustrations use the historical average yield of U.S. 10-Year TIPS for discounting. All lifetime benefits are expressed in present values, calculated using an inflation-adjusted discount rate and life expectancy of 89. The numbers are sensitive to, and will change with, the discount rate and life expectancy assumptions.

4. Social Security Administration, “What Every Woman Should Know,” June 2013.

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