Data and Research November 13, 2015

Retirement Realities Drive Social Security Decisions for Women

Lower account balances, longer life expectancy and not working an adviser can wreak havoc on a woman’s Social Security benefit.
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Eighty-two percent of retired women currently collecting Social Security benefits took them early, locking in a lifetime of lower payments, according to a Nationwide Retirement Institute survey. 

Another drag on women’s finances in retirement could be the effect of not working with an adviser. Fewer than one in five (just 17%) of the women surveyed say they received advice on Social Security from an adviser. However, nine in 10 women (87%) who work with an adviser say their Social Security payment was as expected or more than expected.

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“One of the key takeaways of our survey is that women need to get professional advice earlier, to ensure they have a plan in place before a life event renders them unprepared and forces them to take it early,” says Kevin McGarry, director of the Nationwide Retirement Institute.

It’s not that women don’t want the advice. In fact, more than three in five women (63%) admit that if their financial adviser could not show them how to maximize their benefit, they would switch to an adviser who could.

Of the nearly 300 women currently collecting Social Security, only five maximized their monthly check by waiting to claim at age 70, Nationwide found. However, waiting as long as possible to claim Social Security means a bigger check, a boon for retirees in meeting retirement goals, especially since claiming strategies have recently changed, eliminating a popular but under-utilized tactic. 

NEXT: Why don’t more women delay claiming Social Security?

Waiting until age 70 to claim can mean a benefit up to 76% larger than the monthly payout if claiming began at age 62, according to Shawn Britt, director of advanced consulting at Nationwide. Unfortunately, fewer than 2% of women wait. In general, Britt says, “Women have to be prepared to live longer and often have to do so with less savings. This makes maximizing Social Security benefits extremely important.”

The survey asked women to look back on the claiming decision they had made. Nearly a quarter (24%) of women who filed early (between 64 and 66) said they would change their decision and file later.

Many who claimed early felt they had been forced to take their benefits in the face of expensive, unexpected retirement realities. The ones who were satisfied with their filing decision say an unforeseen life event (46%), unexpected health problems (19%) or job loss (11%) compelled them to take it early.

Because of a strapped budget, more than a third of women (38%) say they can’t do the things they want in retirement. Health care expenses are another challenge, and one in four (25%) cite health care costs as cutting into the retirement they desired.

Almost one in four (24%) overestimate their Social Security benefit. Women who have yet to collect Social Security on average expect $1,457 in monthly benefits. Women nearing retirement also expect their benefit to pay 53% of their expenses in retirement.

But the reality is that even women retirees who were able to wait to collect at full retirement age report an average monthly payment of $1,376, while those who started taking Social Security early report receiving just $980. Citing the budget act that altered Social Security rules, Britt says future retirees will likely end up receiving even less than expected.

“Even though filing decisions based on income need, health and longevity are inherently personal, many women decide to claim Social Security when their husband does,” Britt says. Whether single, married, widowed or divorced, there are a variety of smart filing strategies open to women, he points out, but too few are seeking professional advice to take advantage of them.

 More information for advisers on Nationwide’s Social Security tools are on its website. 

Benefits November 12, 2015

Changes for Social Security Require Revised Education

Retirement plan sponsors and advisers will need to revamp education for participants to reflect changes in Social Security claiming strategies.
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In the wake of the Bipartisan Budget Act of 2015, changes to several Social Security claiming strategies have caused a flurry of questions from plan sponsors and plan advisers. 

The most significant change, according to Tom McGirr, senior vice president of workplace retirement products at Fidelity, was the end of two major Social Security claiming strategies for married couples: “file and suspend” and restricted application for spousal benefits.

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Kevin McGarry, director of Nationwide Retirement Institute, says the change in file and suspend has led to a lot of media attention. “More participants are asking questions,” he tells PLANSPONSOR. “The need for education has increased, and will likely continue to grow along with interest around the topic.”

“Plan sponsors are in the process of digesting these changes and deciding how to best help participants with their Social Security claiming strategies,” McGirr tells PLANSPONSOR.

The new law causes a voluntary suspension of benefits to stop all benefits payable under the earnings record of the person whose benefit was suspended. For married couples, this means the spouse can no longer collect a spousal benefit during the time in which the wage-earner’s benefit is suspended.

“There’s a window of opportunity, particularly around file and suspend,” explains Roberta Eckert, vice president of Nationwide Retirement Institute. “People need more clarity than ever,” she tells PLANSPONSOR. “They don’t want to miss that window, so they are scrambling for answers.”

In a related strategy, an individual at age 66 could file a “restricted” application for just spousal benefits, while allowing his or her own future retirement benefit to grow. For individuals turning age 62 in 2016 or later, Social Security will no longer allow that individual to restrict an application to spousal benefits only. The individual will be required to file and claim all eligible benefits. Notably, however, those 62 or older at the end of 2015 will continue to have the option to restrict an application to spousal benefits only.

NEXT: Change in participant education needed

In short, married couples have fewer claiming strategies, and age is more important than ever, as the rules are being phased in for members in different birth years.

The rules make filing for benefits and optimizing claiming strategies more complex, McGarry says. Anyone born in 1954 or later will no longer be able to file a restricted application, collecting just a spousal benefit while letting their own retirement benefits rise. Things get even more complicated when a married couple has different birth years, notes Eckert. IF one spouse was born in 1954 or earlier, and the other later, two sets of rules must be followed.

“One point we’re underscoring with clients is that Social Security continues to be an important component of retirement income for many Americans,” McGirr says. “How employees and couples use claiming strategies and what age they claim can impact their monthly check. It’s important that employers provide employees with the best guidance so that not only are they aware of how these changes affect them, but also help them identify and use the strategies that are best suited for their situation.”

Eckert suggests plan sponsors and advisers turn to providers for help in understanding how the Bipartisan Budget Act works, as well as how to provide information to plan participants. “They’re concerned because they’ve heard a lot of different commentary and they want to understand how the rules play out, but they are gratified to see updated tools and collateral pieces that can help,” she says.

McGarry notes that Institute research showed that more than half of investors believe their adviser would help them with Social Security decisions, with four out of five saying they would seek out a new adviser if the old adviser couldn’t help them, underscoring the need for advisers to become competent in claiming strategies. “Over the course of last week and half, I was surprised there were many plan advisers who were surprised that the Bipartisan Budget Act had any impacts to Social Security or Medicare,” he says.

One reason, Eckert says, is that the budget bill was passed relatively quickly. “It wasn’t brought to floor months ago and kicked around,” she says. “It came to fruition quickly and was debated quickly over Halloween weekend.” The speed of the budget’s passing caught a lot of people short and left them struggling to understand the changes, Eckert says.

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