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In dollar terms, social security is generally the shortest leg of the retirement stool. Never meant to provide a comfortable retirement in itself, it was intended to help prop up other resources. But for women, who in the past have had limited access to other resources, it has proved to be the sturdiest leg. Consider the following statistics:
- For 77% of unmarried women who are in retirement, social security represents more than half of all income, and for 29% of unmarried women retirees, it is the only source of income. Among the U.S. population as a whole, 22% of all retirees rely on social security as their sole source of support.
- For the typical woman of retirement age, social security accounts for 53% of income, compared with just 38% of income for the typical man in retirement.
And that income is hardly lavish. In 2005 the maximum social security benefit for someone who retires at full retirement age is $23,534 per year. The benefit paid out to a medium wage earner is considerably lower-$15,499 per year. Of course, over time that figure does increase with inflation. By the year 2015, the medium annual benefit is expected to be about $21,600 (in inflation-adjusted dollars), while the maximum is expected to be in the neighborhood of $32,000.
For a typical worker (which the Social Security Administration defines as someone making about $36,000 today), social security will replace about 41% of pre-retirement earnings; for the maximum earner it will replace about 27%.
WHAT YOU'RE ENTITLED TO. You must work and pay social security taxes for at least 10 years to qualify for retirement benefits in your name. As more women have entered the work force and stayed on the job longer, more women are qualifying, independent of their spouses. You can pick up work "credits" from working part-time and through self-employment, as long as you report your earnings and pay the self-employment tax. To calculate your benefit, the Social Security Administration takes into account your highest-paid 35 years of employment. If you worked fewer years than that because you took time off to raise your family, each year that you took off would count as zero earnings, and your benefits would be reduced accordingly.
If you're married, though, you qualify for benefits even if you don't work. If you've never worked at a paid job, you're entitled to receive 50% of your husband's social security benefit (he gets 100% of his benefit, and you get 50% of that amount). If you also qualify for benefits on the basis of your own work record, you'll receive either 50% of his or 100% of your own.
You can even qualify for benefits if you are widowed or divorced-and if you are widowed and have unmarried children under 18, they can qualify for survivor's benefits, too.
One important thing to remember is that although 65 is generally thought of as the normal retirement age at which people are entitled to full social security benefits, full retirement age has gradually begun moving from 65 to 67. Starting with people born in 1943, the age at which full retirement benefits are paid is 66. And people born in 1960 and later won't hit full retirement age until 67. You can start collecting social security retirement benefits as early as age 62, but the benefit amount will be reduced. If you don't need the money, you're probably better off waiting till full retirement age to start collecting.
The Social Security Administration is happy to figure out what you've got coming. Each year the government sends customized notices to all workers age 25 and up, showing an estimate of how much they've paid into the system so far and what their estimated benefits will be when they retire. Each statement also shows the worker's complete earnings history, according to the Social Security Administration's computer records. Take a few minutes to go over the numbers that you receive and check them for errors. Your benefits will be based on those numbers, so if your earnings are underreported, your benefits will be reduced. If you have misplaced your statement, want an updated one, or wish to correct an error, call the Social Security Administration at 800-772-1213, or visit www.ssa.gov. The site also features information especially for women at www.ssa.gov/women.
WHAT YOU CAN COUNT ON. For almost as long as any of us can remember, politicians and economists have been debating the future of social security. The best guess is, Yes, there will be a social security, even for 20-somethings who are just now entering the work force. But changes in the system, necessary to put it on a sound footing for the long-term, will probably mean lower benefits. Here's what you should expect, depending on your age:
- If you're 55 or older: You'll be insulated from major changes. Plan on getting roughly what your benefits statement now indicates-maybe a tad less if there are minor changes down the road, such as smaller cost-of-living adjustments (increases to compensate for inflation) or higher taxes on benefits.
- If you're 40 today: You'll still collect benefits. But at some point, middle-aged and younger workers are going to bear the brunt of putting the system into balance for the long term. If you're 40 now, it's reasonable to assume that in the absence of other reforms, your benefits would be cut by around 10%.
- If you're 25 today: While it's trendy for 20-somethings to say they expect nothing from social security, at the very least you should count on the program as a safety net. But you will probably pay an even higher price than your 40-year-old cousins to eventually put the system into balance. It's not unreasonable to expect a 20% cut in projected benefits.
Of course, if social security adopts some type of personal investment account, as President Bush has proposed, younger workers could make up some, if not all, of any cuts in guaranteed benefits.
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