Women have made incredible strides in their effort to achieve equal treatment with men.  In the United States, women gained the right to vote with the passage of the 19th Amendment to the US Constitution which was ratified in 1920.  The gap in pay with men has shrunk significantly, because of the Equal Pay Act of 1963.  The Pregnancy Discrimination Act of 1978 made discrimination based on pregnancy illegal.  The Family and Medical Leave Act of 1993 gave women the right to take a leave from a company to care for a newborn or adopted child.

Yet, with all of those legal victories, women are still at an economic disadvantage to men.  Women still earn less than men and this is still true even when they perform the same job duties as their male counterparts.  They live longer than men, 5 years on average, and this means they need more resources than men will in retirement.  They often spend many years of their lives caring for children, parents, other family members (e.g. aunts and uncles) and their spouses.  As a result, they end up with smaller pensions, retirement accounts, savings and investments than men.

There is, however, a significant government benefit that has saved millions of women from poverty:  Social Security.  Let’s review this incredible social program and what it can mean for you as you plan for your retirement.

The Social Security Act was passed in 1935 during the Roosevelt administration in the aftermath of the Great Depression.  Among the goals of the legislation was to provide financial security for Americans after they stopped working and could no longer earn an income.  Prior to the creation of Social Security, people worked as long as they could and if they could not work and did not have savings, they were left destitute and reliant upon charity.

How do I qualify for Social Security?

If you are working, your employer is required to make payments to Social Security under the Federal Insurance Contributions Act (FICA).  A portion of those payments are considered employee contributions (yours) and a portion are considered employer contributions (your employer).

You earn a credit for every quarter that you work and contribute to Social Security.  You can earn up to four credits in a year.  To become eligible for benefits, you must accumulate 40 credits which is effectively 10 years of working.  The Social Security Administration (SSA) will track your earnings to determine your eligibility for retirement, disability, spousal and dependent benefits.

Each year your employer is required to send a Form W-2 to Social Security which indicates your earnings and your contributions to Social Security.  It is important that this information is accurate.  So, do check it and have your employer correct it, if you find inaccuracies.  Social Security is a key financial resource for women in retirement.

How are my retirement benefits through Social Security calculated?

Your retirement benefits are based on your lifetime earnings.  The SSA adjusts your earnings (i.e. indexes them) for changes in average wages since the year you received them.  Then the SSA calculates your average indexed monthly earnings (AIME) for the 35 years in which your earnings were the highest.  So, if you worked 45 years, the SSA will take the 35 years with the highest wages.  The SSA applies a formula to these earnings to arrive at your basic benefit or “primary insurance amount” (PIA).

When can I take my Social Security retirement benefits?

You can take your retirement benefits as early as age 62.  However, your full retirement age (FRA) benefit is the age at which your benefits are unreduced.  That age depends on when you were born.  You can determine your FRA by looking on the SSA website.  If you take benefits before your FRA, they will be reduced.  Alternatively, if you wait to take them, they will be increased.  You can wait up to age 70 before taking your retirement benefits.

Want to learn more about retirement planning? Contact our team at Springwater Wealth today to learn how we can help you develop a plan for your financial future.


Are my retirement benefits through Social Security adjusted for inflation?

Yes.  Your retirement benefits will be adjusted for any increase in the cost of living as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers.  The SSA provides information about cost-of-living adjustment on its website.

If you have ever spoken with anyone receiving Social Security retirement benefits about the annual adjustment for inflation, you have probably been told that the increase rarely seems to be enough to keep with the rising cost of living in retirement.  One of the reasons for this is that retirees often spend more on health care than those who are still working.  The inflation rate associated with health care expenditures has exceeded the overall rate of inflation for many years running.

When do my retirement benefits end?

They don’t.  Your Social Security benefits will be paid to you as long as you are alive.  This is rather extraordinary.  Your retirement benefits are guaranteed by the federal government, indexed for inflation every year and paid for life.  You are not likely to have any other income source like it.

How much of my income will be replaced by my Social Security retirement benefits?

Social Security retirement benefits typically replace about 40% of a worker’s pre-retirement income.  The benefits are structured to replace relatively more income for lower wage workers and less for higher earning workers.

Most women expect Social Security to cover their expenses in retirement.  This is not realistic. So, it is important to save while you are working and enter retirement with other resources in addition to Social Security benefits.

Can I receive benefits based on my ex-spouse’s work history?

Yes.  However, you must meet all of the following requirements.  You must have been married to your ex-spouse for at least 10 years.  Your spouse must be alive.  You must not be re-married.  You must be over the age of 62.  The benefit to which you are entitled based on your own earnings history must be less than the benefit you would receive based on your ex-spouse’s work history (otherwise, you would just take your own benefit).  Also, if your ex-spouse has not applied for benefits, but qualifies for them and is 62 or older, you can receive benefits on his record as long as you have been divorced for at least two years.  If your ex-spouse is deceased, you are still eligible for benefits on his record.

Note: The process of taking benefits on the greater of your record or your ex-spouse’s record is called “deemed filing” by the SSA, because when you file for one benefit you are required, or deemed to be filing for the other benefit.

If I am a widow, do I receive Social Security retirement benefits?

Yes.  If your spouse dies and you are over the age of 60, you can qualify for survivor’s benefits.  Your benefit amount will be based on your age and the benefit amount your deceased spouse was entitled to at the time of death.  It will also be based on the benefit for which you are qualified based on your own earnings history.  You will receive the greater of those benefits, but not both.

Note: if your own retirement benefit through Social Security will be greater than your deceased spouse’s, you can take your higher benefit as early as age 62.

What if I was divorced, took benefits on my ex-spouse’s record and then remarried?

In this case, you would forfeit the benefits you receive on your ex-spouse’s record.  You would qualify for benefits on your record.  You would also qualify for benefits on your new spouse’s record.

What happens if I take my Social Security retirement benefits and keep working?

If you continue to work and take benefits before you reach your full retirement age (FRA), your Social Security benefits will be reduced $1 for every $2 you earn over the annual earnings limit.  In the year you reach your Full Retirement Age, your benefits will be reduced by $1 for every $3 you earn over the limit the months before you reach your FRA.

The good news is that the SSA will pay you a higher monthly benefit when you reach your FRA and your total lifetime benefits will not be reduced.

How do I learn what my Social Security benefits are projected to be?

You should open a “my Social Security” account at the SSA’s website.  There you can verify your earnings history and get an estimate of your future benefits.  For information directed to women, download What Every Woman Should Know.

Final Thoughts and Tips

Social Security benefits are an important resource for women in retirement.  You should seek to build your earnings history with the SSA.  To maximize your benefits, plan on taking your retirement benefits as late as possible, ideally at age 70.  If you are married and the marriage has not lasted 10 years and your income and earnings history is significantly less than your spouse’s, think carefully about the financial implications of getting divorced.

Social Security will not meet all of your needs in retirement.  So, plan to save in other ways.  Ideally, you will have several other retirement resources such as a pension, employer sponsored retirement plan (e.g. 401(k) or 403(b)), an IRA, a Roth IRA and other savings and investments.

For further information about Social Security, please visit Social Security online.