In an earlier Next Avenue blog post, I noted that many women have rocky relationships with financial advisers because they find the money pros disrespectful and condescending.
I’ve now found disturbing news that financial advisers often give women bum advice about when to claim Social Security retirement benefits. This could have long-term implications for women, because the date you start collecting Social Security affects the size of your monthly checks for the rest of your life.
The research firm Mathew Greenwald & Associates and Andrew Biggs of the American Enterprise Institute think tank conducted this study of financial advisers and Social Security in conjunction with the Wharton School’s Pension Research Council. I first learned about it in “Social Security Advice That Harms Wives,” a post from Squared Away, a terrific blog sponsored by the Center for Retirement Research.
What the Advisers Study Found
In the study, researchers provided 406 financial advisers with hypothetical couples’ situations and asked how they would advise them on Social Security claiming strategies.
(MORE: Women and Financial Advisers: A Rocky Relationship)
Stunningly, more than one-third (38 percent) of the advisers surveyed said that the best way to frame the decision of when to claim Social Security is “like a gamble.”
Trouble is, “there is strong evidence that this type of framing encourages people to claim early,” according to the study’s authors, Mathew Greenwald, Andrew Biggs and Lisa Schneider.
But it’s generally not in a woman’s best interest to claim Social Security benefits before what’s known as full retirement age (between 66 and 67 if you were born from 1943 to 1959; 67 if you were born in 1960 or later).
Your monthly benefits are reduced by about 30 percent if you start collecting Social Security at 62, for example.
Boosting Your Benefit 8 Percent a Year
And your Social Security benefits are increased by 8 percent a year (over the amount at full retirement age) for every year you postpone receiving checks between your full retirement age and age 70. That means a 62-year-old woman can boost the size of her monthly Social Security checks by more than 75 percent if she waits to start claiming them until 70. For me, the difference between receiving benefits at 62 and 70 could wind up being about $1,000 a month.
Delaying Social Security paychecks can make a huge difference over a woman’s lifetime. That’s because women live longer than men, on average, and will rely to a greater degree than men on Social Security income in retirement. Most women age 65 or older receive at least three quarters of their income from Social Security, according to the Employee Benefits Research Institute.
(MORE: When It Comes to Money, The Deck Is Stacked Against Women)
As a rule, if you’re a healthy woman, it pays to delay receiving Social Security benefits until at least your full retirement age.
What Advisers Don’t Know
The survey also showed that many financial advisers have an astounding lack of knowledge about Social Security. Although nearly all the advisers (93 percent) considered themselves knowledgeable about how Social Security works, just 44 percent were aware that all workers' benefits increase if they wait to claim them.
What planet are these advisers on? I’d have thought that all of them would know that key tenet of Retirement Planning 101.
As a married woman, the finding that raised my eyebrows the most was this one: Only 20 percent of the advisers recommended that if a couple is in excellent or average health “the man [should] delay claiming Social Security benefits as long as possible.”
In general, it’s more advantageous for the higher-earning spouse — often the husband — to delay signing up for his Social Security retirement benefits. By waiting, he increases the size of his monthly Social Security check and, in turn, provides his wife with a larger survivor benefit after he dies.
Sure, the Social Security rules are complex. But financial advisers need to wise up. Telling clients that it’s a crapshoot is a painfully poor assessment. We count on money pros to make sense out of the confusing choices we face.
(MORE: Figure Out Early and Late Social Security Benefits)
When to Claim Social Security
Of course, since everyone's personal situation depends on variables such as health, employment history and personal savings, there's no set age for starting to collect Social Security benefits that's right for everyone. There's no denying, however, that the later you decide to claim (up until age 70), the greater the potential benefits may be.
Ultimately, the decision is up to you. To help you figure out what's best in your case, I recommend taking these four steps:
1. Do your research. A good place to start is with Social Security’s explanation of benefits on Next Avenue, “Figure Out Early and Late Social Security Payment Benefits.”
Also, check out Laurence J. Kotlikoff’s Next Avenue post, “How to Avoid Making Social Security Mistakes.”
Forbes’ executive editor Janet Novack offers a smart analysis in her article “The Big Decision: When to Take Social Security.”
2. Get your Social Security statement online. This document, available free at socialsecurity.gov, estimates the Social Security retirement and disability benefits you’ll receive, and provides Social Security’s record of your lifetime earnings history.
I suggest you get in the habit of checking your Social Security statement online annually — I do it around my birthday. Social Security now only mails paper statements to workers 60 and older if they are not already receiving Social Security benefits.
3. Make a personal retirement plan projection. I especially like the online calculator that Next Avenue links to, called The Ballpark E$timate, from the Employee Benefit Research Institute's site, choosetosave.org.
Try out the Livingto100.com calculator. This tool, from the founder and director of the New England Centenarian Study, Dr. Thomas Perls, helps you estimate your life expectancy. Think of it as whimsical motivation to aim for the biggest bang from that future Social Security check.
I discovered that my life expectancy is 93. Yikes. Looks like I’d better save even more for retirement.