Self-sufficient Social Security

The headline in our wealth manager’s newsletter read: “Almost Nine Out of Ten Women Qualify for Social Security on Their Own.” I wondered, “Why is this newsletter worthy?”

Milestone

More women enter the workforce every year. Since most people have to earn 40 credits to retire, you have to work (and pay into Social Security) for at least 10 years to qualify for retirement benefits. The fact that the percentage of women ages 62 to 64 who meet these requirements based on their own work records has risen 24% since 1980, means women are staying in the workforce long enough to earn their own benefits.

How it Works

There are three types of Social Security benefits: retirement, disability, and survivors. In a nutshell, when you are employed by an organization where the Social Security Administration (SSA) takes a percentage of your paycheck in taxes, it uses those wages to fund a program that distributes payments to retirees, the disabled, and their families who qualify. The assumption is eventually most Americans will qualify for Social Security and draw money from it. We’ll stick to retirement benefits for this conversation. To qualify for SSA retirement funds, you must reach your full retirement age, accumulate enough credits, and apply for it. Here is a good explanation of Social Security benefits.

What Women Should Know

Almost 55% of people receiving Social Security retirement benefits are women. Not only do women earn their own benefits, they can qualify for a spouse’s benefits. This is significant because women tend to live longer and earn less than their spouses. Social Security will not be as much money as your current paycheck. You can expect it to be about 40% of what you’re currently earning. Social Security should only be part of your retirement plan. You can use it as a foundation to build on. If your employer offers a 401(k) (or a 403(b)) plan, you should participate. If your employer contributes to it as well as invests a percentage of your paycheck for you, contribute at least as much as they do and increase your percentage beyond their contribution every year. It would also be wise to open an Individual Retirement Account (IRA). The current rule of thumb is saving 15% of your income for retirement. Three sources of retirement income seems like overkill, but a quick Google search indicates a nest egg of $1,000,000 will only last 19 years in retirement. Social Security benefits last until you die, but you won’t receive the same amount throughout your retirement. Payments are made monthly and usually by direct deposit. Every year, the SSA considers adjusting retirees’ payments for inflation and decides whether or not it will increase them to reflect the cost of living. The SSA has explanations for how changing your name, becoming disabled, or divorced or widowed affects your social security benefits. You can read about it here.

The increase in women who earn their own Social Security benefits means more people are paying into the program. It also means more people intend to be paid from it. Could this be an incentive to prompt thinking on how we can empower more women to stay in the workforce so Social Security can sustain funds?

What do you think? Please share your opinion in the comments section.