7 Social Security Mistakes Women Need to Avoid

7 Social Security Mistakes Women Need to Avoid

August 10, 2022

Social Security and women:  I meet women almost daily who have questions and concerns about Social Security, and I am more than pleased to demonstrate The Real Value of Working With a Female Financial Advisor. Women often make mistakes when it comes to Social Security that could have been avoided if they had sought out a female financial advisor many years prior. 

But not to worry! The best time to plant a tree was 20 years ago. The second best time is NOW. So today you will learn 7 Social Security Mistakes Women Need to Avoid. 

 (H2) How Do Women Maximize Social Security Benefits and Learn Known Facts About the Program? 

Pure and simple: it’s all about education and learning what are the best options for you, as a woman. Stereotypes exist for a reason. While there have been incredible movements in modern women taking the reins of their financial freedom, a significant portion of the population may not be aware of all of the repercussions of social security. This isn’t to disparage anyone. Even in the most shared of partnerships, one person tends to handle the money more than the other. 

As we age and begin to look to what our futures will be during retirement, in a more relaxed setting, it is crucial to think about our revenue streams. More than 69 million U.S. adults rely on social security for all or part of their monthly income. That makes it pretty important for revenue and for tax implications. 

There are some specific things women, in particular, should consider when organizing social security paperwork. Hopefully, these will answer many of the concerns and questions you may have about what social security will look like in your personal life and help you avoid the biggest Social Security mistakes women make. 

1 - Social Security and Women: Not Being Proactive

As I’ve blogged previously, women outlive men in the United States. This is closely related to the fear women have of becoming a bag lady. While it may seem like a benefit to outlive men, on average, men are still working long hours and years than women. That means women will face greater financial challenges than men when reaching retirement age. 

To combat this, you must proactively organize your financial information and meet with a qualified advisor (preferably a CERTIFIED FINANCIAL PLANNER™ professional). Some women have life insurance policies or income streams set up by their husbands before a divorce or passing away. The sad reality is that many of us do not consider life on our own again, and being proactive about preparing for our financial security is a must, especially with social security benefits. 

2 -  Social Security and Women: Benefits Taken Early

Workers planning for their retirement should be aware that retirement benefits depend on age at retirement. If a worker begins receiving benefits before his/her normal (or full) retirement age, the worker will receive a reduced benefit. A worker can choose to retire as early as age 62 but doing so may result in a reduction of as much as 30 percent.

You can receive partial benefits at 62 years old. If you are eligible for monthly Social Security payments, you can get a small amount of your benefit as soon as you reach age 62.  However, you are limited to the income you can earn up to $19,550 in 2022. You will lose $1 for every $3 in excess. 

Starting to receive benefits after the normal retirement age may result in larger benefits. With delayed retirement credits, a person can receive his or her largest benefit by retiring at age 70.

Be sure to meet with a financial advisor, as starting benefits early will affect the number of your future payments. 

3 - Social Security and Women: Choosing a Lump Sum Payment 

The absolute maximum lump-sum payment that the Social Security Administration will make is six months' worth of benefits. So, if your full retirement age is 67, then you'll qualify for the six-month maximum if you request a lump sum any time after you turn 67 1/2. It’s easy to understand how this could be valuable. With the average worker benefit of about $1,500 per month, a lump sum could put $9,000 into your pocket quickly. That's a nice nest egg to start out your retirement. 

Another common mistake is taking a lump sum instead of a lifetime income stream. Lump sum payments may be taxed at a higher income bracket than the lifetime income stream. 

The second thing to keep in mind is that lump sum payments are not inflation-adjusted, so if you have any longevity concerns (you know, like living longer than expected), then it's probably best to stick with the lifetime income stream option. 

Finally, as long as your life expectancy is average (meaning no health issues or anything like that), one of the significant advantages of this type of payment option is that it can be invested with relative ease. 

4 - Social Security and Women: Marriage Doesn’t Restrict Your Benefits

Many women mistakenly believe that marriage restricts their Social Security benefits. It doesn’t, and here's why: 

  • If you are married and your spouse is collecting benefits, you are eligible to receive a spousal benefit. This can amount to as much as 50% of the benefit your spouse earns, but you will need to wait until you are at full retirement age.
  • As long as you were married for at least 10 years, you can collect the same spousal benefit as if you were married to someone you have divorced. The catch is you cannot be remarried again, and you will need to wait for full retirement age.
  • If your spouse were to pass, you are entitled to a “Widow’s Benefit.” This amounts to 71% of your spouse’s benefit at age 60 and then 100% once you reach full retirement age. The same is true if you divorced and were married for at least 10 years prior and have not gotten remarried. 

5 - Social Security and Women: Don’t Forget the Windfall Rule

You may have heard that the Social Security Administration (SSA) pays benefits on a “windfall” basis. This means you can be eligible for both your work record and your spouse's. If you are, the SSA will pay you the higher rate. 

There are exceptions to this rule, but if someone is eligible for two benefits, it is likely that he or she will be paid at least one of them at their maximum rate (or 100% of what they were earning when they retired). 

6 - Social Security and Women: Not Accounting for Taxes & Inflation

The U.S. government was not exempt from its own tax laws, and thus it applied Social Security taxes to your benefit. This means that each year you'll receive a document showing the number of benefits withheld for taxes. 

While it may sound like a hassle to pay taxes on your Social Security check, there is some good news. You can get a credit for any amount withheld if you meet certain criteria and file an income tax return by April 15th of the following year. 

The important thing to remember is when you get an extra dollar, it’s worth less. Inflation is when the value of money slowly erodes over time. It works the same way for Social Security benefits. As the cost of living goes up, so does the amount you can buy with each dollar. 

Although Social Security benefits are adjusted for inflation in most cases, these adjustments aren't automatic. They're based on increases in average wages and prices within society as a whole. If your income doesn't grow at the rate of inflation (or faster), then your purchasing power will decline over time. 

7 - Social Security and Women: That Part-Time Job May Affect Benefits

If you’re working, the extra money will be taxed at a higher rate than what you get from Social Security. To avoid this, make sure you have your Social Security payments adjusted for your earned income. 

Another way to ensure that your Social Security retirement benefits are not reduced is by claiming them early on in retirement rather than waiting until later in life when it would be more beneficial. 

The sad reality is the more you earn from a W-2 job, the less you will receive in benefits. That is why setting up LLCs, S-Corps, and residual investment accounts is important for your future well-being. 

Working with us, we help you create a Retirement Income Plan to leverage all sources of income available to you. 

Women Need to Take Steps Early to Maximize Social Security Benefits 

Strong women like us must take steps early and be aware of our choices as we prepare for retirement. It’s essential to understand your choices regarding your social security benefits. 

If you're already receiving benefits, then you can't change them. However, if you haven't yet been collecting payments from Social Security but want to file for early retirement benefits or disability benefits, some things could affect how much money you receive from the government. 

That is why you need to meet with an experienced and knowledgeable financial advising team that works with women as they retire and prepare for the next phase of life. At Meyers Financial Services, we have worked with women just like you who are trying to navigate the many details and confusing rules of social security benefits.  

Our expert financial advisors know how to find the best possible solution for your current situation and lifestyle. Reach out today and schedule an appointment so we can help you feel empowered to take those next big steps into retirement. 

Book a Call today and lets discuss your options.

Lillian Meyers CFP®, CDFA®, EA is a Financial Planner for Women in Sonoma, California helping clients live their best life through the use of financial planning, investment management, and other sophisticated financial options.