Ladies first.
For married couples deciding when to take Social Security benefits, it usually makes sense for the wife to claim hers first and for the husband to wait.
So concludes a study that takes into account women's longer life expectancy and the additional money that married women can receive thanks to the Social Security spousal and survivor benefits.
But single women, who are ineligible for spousal or survivor benefits, usually are better off delaying filing for benefits.
"Single women and married women face very different choices," wrote Alicia Munnell, director of the Center for Retirement Research at Boston College, and Mauricio Soto, senior research associate at the center, in an article in the Journal of Financial Planning.
Here's why:
- On average, women in the United States are paid lower wages than men. As a result, women's Social Security benefits based on their own work records tend to be lower than men's.
- For single women, therefore, continuing to work rather than taking early retirement boosts both current earnings and future benefits. Because women tend to live longer than men, they can expect to collect the higher benefits more years than men would.
- Many married women, on the other hand, don't depend so much - or at all - on their own earnings for their benefits. That's because non-working and low-earner spouses, who are usually the women, qualify for the spousal benefit.
- With this benefit, the wife can receive up to one half the husband's full retirement benefit no matter how small the benefit based on her own work record is.
- Since men tend to die younger and husbands on average are older than their wives, many married women will become widows and qualify for the survivor benefit.
With this benefit, if the surviving spouse is already of full retirement age, the survivor's total benefit will equal whatever the deceased spouse was receiving.
The end result is that a married woman's benefits may depend more on her husband's work record and life expectancy than on her own. In turn, a husband's decision of when to claim benefits should take into account his wife's needs after he dies.
That's why for many married men it makes sense to delay filing for benefits even beyond the normal retirement age. That way they gain additional credits for waiting that raise their benefits.
"If he cares about his wife, he should delay filing so that she has a very high survivor benefit," Munnell said.
"The survivor's benefit is an important consideration, often overlooked, for the decision of when to claim Social Security benefits."
Taking all these factors into account, a strategy than can make sense for a lower-earner wife is to file for benefits as soon as possible at age 62 based on her own work record while her husband delays filing for his benefit.
Then, when the husband does file, the wife can collect the spousal benefit if she qualifies for one. After the husband dies, the wife will receive the higher survivor benefit.
In general, the study suggests that in most cases married men delay claiming Social Security benefits until age 69 to increase the wife's potential survivor benefit.
It also suggests that wives whose earnings provide a benefit of between 40 percent and 100 percent of that of her husband file as early as possible. Almost half of married women in the United States fall into this group.
Filing early for benefits based on their own record does reduce the wives' spousal benefit if any when the husband files for his own.
But it will not reduce the survivor benefit if the wife has reached full retirement age when the husband dies. For specific strategies based on the age of spouses and their work records, you can read the entire article at http://www.fpanet.org/journal/articles/2007(underscore)Issues/jfp0607-art7.cfm.
