Social security has long been an issue for women. Now, with the changes to social security as a result of the recent Bipartisan Budget Act of 2015, it appears that women are likely to be harmed more than any other demographic. The new rules governing social security filing strategies starting in 2016 make it more difficult than ever for women to maximize their benefits.
Compared to other retirement assets, social security plays a disproportionately important role in providing income for women throughout their retirement. Generally speaking, some of the key factors affecting women in retirement are that they generally live longer than men, typically have a lower social security benefit amount, are more likely to be burdened with the expense of long-term care and they struggle more financially as a result of divorce.
According to the Social Security administration, as of 2013, income from social security benefits accounted for nearly half of all retirement income for unmarried women, including widows age 65 or older. For retired women currently collecting social security, over 80% of them took their benefits early, permanently locking themselves into lower lifetime payments. For example, taking your benefits early, at say age 62 versus age 66, will result in a 25% permanent reduction in benefits. However, when surveyed, nearly 25% of respondents indicated that if they could do it over again they would have delayed the start of benefits in order to take advantage of higher lifelong benefits.
To make matters worse, the new social security rules make it even more difficult for women to maximize benefits. For example, at present, married or qualifying divorced spouses who are entitled to both their own retirement benefits and spousal benefits can elect to collect just spousal benefits if they wait until full retirement age (66 in most cases) to file for benefits. A spousal benefit is equal to 50% of the other spouse's (or ex-spouse's) full retirement age benefit amount. While collecting spousal benefits, their own benefit would increase in value by 8% per year to age 70, when they would switch to their own now higher benefit.
Under the new Budget Bill, however, the ability to temporarily claim just spousal benefits is being phased out. Married or divorced spouses who are at least age 62 by the end of 2015 will retain the right to claim only spousal benefits at age 66, assuming that their spouse has filed for benefits. Divorced spouses who were married for at least 10 years, divorced for at least two years and are currently unmarried are entitled to social security benefits off of their ex's earnings record. However, married individuals or divorced spouses younger than 62 by the end of 2015 will no longer be able to collect only spousal (or ex-spousal) benefits. They will have to take the higher of the two benefits when they file.
Another major rule change involves the elimination of a claiming strategy called "file and suspend". This allowed a worker who reached full retirement age or older to claim social security and immediately suspend his or her benefits. Currently, this would allow a spouse and a minor child to collect benefits off of the worker's record while the worker allowed his own benefit to increase by 8% per year to age 70. Under the new budget rules, their is less than a six month window to take advantage of file and suspend. Only those who turn age 66 or older by May 1, 2016 will be eligible to take advantage of this filing strategy.
The elimination of file and suspend typically harms married and divorced women in particular because they will no longer be able to collect a spousal (or ex-spousal ) benefits while allowing their own benefit to increase by 8% to their age 70. Many women have comparatively lower benefits than men because either they had lower wages than men (still a battle being fought) or they worked fewer years as a result of staying home to raise children. File and suspend offered a way for women to allow their benefits to grow and "catch up" while collecting spousal benefits. Now this opportunity is being phased out.
For single women, file and suspend offered another benefit. Say a single women filed and suspended her benefit at age 66 and allowed it to increase by 32% to their age 70. Then suppose at age 70 she found out that she was seriously ill (or even that she just needed money for some reason), she would be eligible to go to social security and have them pay her a lump-sum of money equal to those 4 years of cumulative "suspended" benefits and then start her payout as if she had filed at age 66. File and suspend offered this "safety net" for women (and men) but it is going away in less than 6 months thanks to the new budget rules.
More than ever, women need to take a closer look at planning for retirement. Given that social security is a critical component of retirement income for most women, it is imperative that women seek out advice from a qualified social security planning specialist who can help guide them through the "new maze" of social security rules. With deadlines as early asMay 1, 2016, there really is no time to waste.
Ash Ahluwalia, NSSA, CCSCA, MBA