Women Disadvantage Themselves by Taking Social Security Early

Making matters worse, women spend, on average, 70% of this income on health care.

Eighty percent of women take Social Security early, according to an online survey of 465 women over the age of 50 who are retired or plan to be within the next 10 years, conducted by Nationwide Retirement Institute. This puts women, who tend to live longer than men, at a distinct disadvantage because taking Social Security early locks in lower payments.


Social Security comprises 56% of women’s income in retirement, according to Nationwide. However, 70% of Social Security will go toward women’s health care costs. Only 5% of women wait to collect Social Security benefits at age 70 or later. More than one third (35%) of women said they were not able to do the things they wanted to in retirement, and 24% said health care costs were hindering their retirement dreams.

Looking back, 17% of women wish they had waited to collect Social Security. Among those who decided to begin their Social Security payments early, 39% said it was due to unforeseen life events, and 17% attributed it to unplanned health problems.

Thirty percent of women said that when they began collecting Social Security, their monthly payments were less than they had expected. Women who have not yet started collecting these payments expect, on average, for it to be $1,527 a month, when, in reality, it averages $1,153, and for those who started early, it’s $1,084.

A mere 13% of women spoke with a financial adviser about a Social Security strategy, and of this group, 86% said their Social Security payment was in line with what the adviser had projected.

“Too many women retirees have no retirement income outside of Social Security,” says Roberta Eckert, vice president at the Nationwide Retirement Institute. “Even for women that do, the fact that they live longer makes maximizing Social Security benefits extremely important.”

It appears that not just women, but even for affluent investors age 55 and older with a net worth between $100,000 and $1 million, Social Security will provide half or more of their retirement income, according to Spectrem Group. However, that may not come to pass, as another survey earlier this year, conducted by the Transamerica Center for Retirement Studies, found that nearly half of Americans, 47%, fear that Social Security may not exist by the time they retire.

Low Interest Rates Not the Driving Force Behind Lower DB Funding

An analysis from the Society of Actuaries finds plans with lower discount rates actually had lower unfunded liabilities.

When it comes to funding defined benefit (DB) pension plans, it is commonly understood that the discount rate used to compute liabilities plays a significant role, as a lower discount rate results in a higher liability, which could lead to a lower funded status.

“Discount rate” refers to the interest rate used to compute the present value of future benefit payments.

Get more!  Sign up for PLANSPONSOR newsletters.

The Society of Actuaries (SOA) did comparisons from 2009 to 2014 of all three major categories of defined benefit pension plans in the United States: single employer (SE) plans, multiemployer (ME) plans, and state and large city public plans (PP). Reflection was limited to the question of whether discount rates were driving the differences in funded status, without any attempt to explain why funded status differs.

The SOA found SE plans averaged the lowest discount rate at 6.8%, followed by ME plans at 7.4% and PP plans at 7.74%. PP plans had the highest discount rate and the highest total unfunded liabilities, while on average, SE plans have the lowest level of unfunded liabilities despite utilizing the lowest average discount rate.

Although the category with the greatest discount rates (PP) was the least well-funded, statistical analysis reveals that discount rates were probably not driving the differences in funding levels. While they are not explored by the SOA, many other factors involved in pension plan funding also differed among and within pension plan categories, including methods for computing unfunded liabilities, overall approaches to plan and risk management, and the way that contributions are determined.

The SOA notes that DB plan funding levels can be impacted by inadequate contribution levels, varying investment returns and plan funding analyses that do not respond fast enough to changing market conditions, among other factors.

A download of the analysis report is available here.

«