By: Sentient Wealth Group
This year, Social Security celebrates its 90th anniversary. Over the past nine decades, it has often been cited as one of the most critical government programs, if not the most important, in the United States.
But how well do we really understand it? If not well understood, it can mean leaving a lot of money on the table, and women are often hit the hardest.
For example, many divorced women don’t know that they receive a good portion of their husband’s Social Security, depending on the number of years they were married. Others misunderstand that it’s not going to replace their whole paycheck; instead, it’s a safety net that enables them to stay out of poverty.
As we celebrate 90 years, it’s a great time to ensure that women everywhere understand Social Security, so that they and their families can get the most from it. Here’s a breakdown of four specific financial gaps that impact women and ways to close them.
The Wage Gap
Perhaps the most relevant gap women face in both their careers and with Social Security is the wage gap. Because women tend to earn less pay for the same job, less is contributed to their Social Security pool. At retirement, women tend to have less than men, even though they’ve been working just as hard. Simply put, less in means less out.
The Mom Gap
Think of this gap as any time a woman leaves her job to devote herself to caring for her children, often in the early or mid-point of her career. Perhaps daycare is too expensive, or it’s a family decision for one parent to stay home and raise the children.
While out of the workforce, women miss out on salary bumps, raises, and promotions that many men still obtain during this time. Her Social Security earnings statement will show she has earned “zeros” for those years, significantly reducing this benefit for retirement.
The Widow Gap
If a woman’s spouse earns more than she does and then dies, the surviving spouse has the right to claim the full Social Security benefit from the deceased spouse. The potential issue is that if her spouse elects to claim his Social Security early (before full retirement age), the widow is left with less Social Security funds than she could have gotten if her deceased spouse had waited.
The Care Gap
Much like the “mom gap,” this gap is the result of time spent away from one’s career to care for a loved one, such as an aging parent. The kicker is that this often occurs during a woman’s peak earning years. If that time away from work is taken out of her Social Security earnings, her benefit estimate suffers. Even if it only changes a woman’s benefit by $100 a month, that can be substantial when she is 80 years old.
Putting More in Women’s Pockets
When Social Security was enacted in 1935, it was illegal for married women to work in 26 states. Although women have made significant progress since then, substantial gaps still exist, and securing a reliable retirement remains a challenge for many.
So, what are the options for women hoping to close these gaps? Here are three suggestions.
- Understand the Social Security math. It’s essential to understand your options and what retiring before full retirement age versus after will mean to your retirement income, both in the near and long term.
- Understand the implications of being a stay-at-home mom. For many women, staying at home to raise their children is a priority, and if in a position to do so, it can be the right decision for them. The most important thing is to walk into this decision with your eyes wide open. In the long run, there will be financial implications, but as long as women are aware of this and prepared, staying home can be a viable option.
- Understand the financial consequences of stepping out of the workforce to care for aging parents. Weigh the costs of paying someone else to care for a parent against continuing in the workforce and earning Social Security credits for your future.
Ultimately, women need to understand their financial situation. By visiting the Social Security Administration’s website and reviewing their current statement, women can better understand their current situation and what their future might hold.
If you have questions about your Social Security and how the decisions you make today will impact your tomorrow, contact Sentient Wealth Group today. We are happy to help you navigate this important aspect of your life.