Four Things Women Need to Know about Social Security

Ever since a legal secretary named Ida May Fuller received the first retirement benefit check in 1940, women have been counting on Social Security to provide much-needed retirement income. Social Security provides other important benefits too, including disability and survivor's benefits, that can help women of all ages and their family members.

1. How does Social Security protect you and your family? 

When you work and pay Social Security taxes, you're paying for three types of benefits: retirement, disability, and survivor's benefits.

RETIREMENT BENEFITS 

Retirement benefits are the cornerstone of the Social Security program. According to the Social Security Administration (SSA), because women are less often covered by retirement plans and live longer on average than men, they are typically more dependent on Social Security retirement benefits. Even if other sources of retirement income are exhausted, Social Security retirement benefits can't be outlived. Many women qualify for benefits based on their own work record, but if you're married, you may also qualify based on your husband's work record.

DISABILITY BENEFITS

During your working years, you may suffer a serious illness or injury that prevents you from earning a living, potentially putting you and your family at financial risk. But if you qualify for Social Security on your earnings record, you may be able to get monthly disability benefits. You must have worked long enough in recent years, have a disability that is expected to last at least a year or result in death, and meet other requirements. If you're receiving disability benefits, certain family members (such as your dependent children) may also be able to collect benefits based on your work record. Because eligibility requirements are strict, Social Security is not a substitute for other types of disability insurance, but it can provide basic income protection.

SURVIVOR'S BENEFITS 

You probably know the value of having life insurance to financially protect your family, but did you know that Social Security offers valuable income protection as well? If you're qualified for Social Security at your death, your surviving spouse (or ex-spouse), your unmarried dependent children, or your dependent parents may be eligible for benefits based on your earnings record. You also have survivor protection if you're married and your covered spouse dies and you're at least age 60 (or at least age 50 if you're disabled), or at any age if you're caring for your covered child who is younger than age 16 or disabled.

2. How do you qualify for benefits? 

When you work in a job where you pay Social Security taxes or self-employment taxes, you earn credits (up to four per year, depending on your earnings) that enable you to qualify for Social Security benefits. In 2016, you earn one credit for each $1,260 of wages or self-employment income. The number of credits you need to qualify depends on your age and the benefit type.

  •  For retirement benefits, you generally need to have earned at least 40 credits (10 years of work). However, you may also qualify for spousal benefits based on your husband's work history if you haven't worked long enough to qualify on your own, or if the spousal benefit is greater than the benefit you've earned on your own work record.
  • For disability benefits (if you're disabled at age 31 or older), you must have earned at least 20 credits in the 10 years just before you became disabled (different rules apply if you're younger).
  • For survivor's benefits for your family members, you need up to 40 credits (10 years of work), but under a special rule, if you've worked for only one and one-half years in the three years just before your death, benefits can be paid to your children and your spouse who is caring for them.

Whether you work full-time, part-time, or are a stay-at-home spouse, parent, or caregiver, it's important to be aware of these rules and to understand how time spent in and out of the workforce might affect your entitlement to Social Security.

3. What will your retirement benefit be?

Your Social Security retirement benefit is based on the number of years you've worked and the amount you've earned. Your benefit is calculated using a formula that takes into account your 35 highest earnings years. If you earned little or nothing in several of those years, it may be to your advantage to work as long as possible, because you may have the opportunity to replace a year of lower earnings with a year of higher earnings, potentially resulting in a higher retirement benefit.

Your benefit will also be affected by your age at the time you begin receiving benefits. If you were born in 1943 or later, full retirement age ranges from 66 to 67, depending on the year you were born. Your full retirement age is the age at which you can apply for an unreduced retirement benefit.

However, you can choose to receive benefits as early as age 62, if you're willing to receive a reduced benefit. At age 62, your benefit will be 25% to 30% less than at full retirement age (this reduction is permanent). On the other hand, you can get a higher payout by delaying retirement past your full retirement age, up to age 70. If you were born in 1943 or later, your benefit will increase by 8% for each year you delay retirement.

For example, the following chart shows how much an estimated monthly benefit at a full retirement age (FRA) of 66 would be worth if you started benefits 4 years early at age 62 (your monthly benefit is reduced by 25%), and how much it would be worth if you waited until age 70--4 years past full retirement age (your monthly benefit is increased by 32%).

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What if you're married and qualify for spousal retirement benefits based on your husband's earnings record? In this case, your benefit at full retirement age will generally be equal to 50% of his benefit at full retirement age (subject to adjustments for early and late retirement). If you're eligible for benefits on both your record and your spouse's, you'll generally receive the higher benefit amount.

One easy way to estimate your benefit based on your earnings record is to use the Retirement Estimator available on the SSA website. You can also visit the SSA website to sign up for a my Social Security account so that you can view your personalized Social Security Statement. This statement gives you access to detailed information about your earnings history and estimates for disability, survivor's, and retirement benefits.

4. When should you begin receiving retirement benefits?

Should you begin receiving benefits early and receive smaller payments over a longer period of time, or wait until your full retirement age or later and receive larger benefits over a shorter period of time? There's no "right" answer. It's an individual decision that must be based on many factors, including other sources of retirement income, your marital status, whether you plan to continue working, your life expectancy, and your tax picture.

As a woman, you should pay close attention to how much retirement income Social Security will provide, because you may need to make your retirement dollars stretch over a long period of time. If there's a large gap between your projected expenses and your anticipated income, waiting a few years to retire and start collecting a larger Social Security benefit may improve your financial outlook. What's more, the longer you stay in the workforce, the greater the amount of money you will earn and have available to put into your overall retirement savings. Another plus is that Social Security's annual cost-of-living increases are calculated using your initial year's benefits as a base--the higher the base, the greater your annual increase, something that can help you maintain your standard of living throughout many years of retirement.

This is just an overview of Social Security. There's a lot to learn about this program, and each person's situation is unique. Contact a Social Security representative if you have questions.The accompanying pages have been developed by an independent third party. Commonwealth Financial Network is not responsible for their content and does not guarantee their accuracy or completeness, and they should not be relied upon as such. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Commonwealth does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice.  Securities and advisory services offered through Commonwealth Financial Network,® Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.

How Women Are Different from Men, Financially Speaking

We all know men and women are different in some fundamental ways. But is this true when it comes to financial planning? In a word, yes. In the financial world, women often find themselves in very different circumstances than their male counterparts.

Everyone wants financial security. Yet women often face financial headwinds that can affect their ability to achieve it. The good news is that women today have never been in a better position to achieve financial security for themselves and their families.

More women than ever are successful professionals, business owners, entrepreneurs, and knowledgeable investors. Their economic clout is growing, and women's impact on the traditional workplace is still unfolding positively as women earn college and graduate degrees in record numbers and seek to successfully integrate their work and home lives to provide for their families. So what financial course will you chart?

SOME KEY DIFFERENCES

On the path to financial security, it's important for women to understand what they might be up against, financially speaking:

Women have longer life expectancies. Women, on average, live 5 years longer than men.1 A longer life expectancy presents several financial challenges for women:

  • Women will need to stretch their retirement dollars further
  • Women are more likely to need some type of long-term care, and may have to face some of their health-care needs alone
  • Married women are likely to outlive their husbands, which means they could have ultimate responsibility for disposition of the marital estate

Women generally earn less and have fewer savings. According to the Bureau of Labor Statistics, within most occupational categories, women who work full-time, year-round, earn only 83% (on average) of what men earn.2 This wage gap can significantly impact women's overall savings, Social Security retirement benefits, and pensions.

The dilemma is that while women generally earn less than men, they need those dollars to last longer due to a longer life expectancy. With smaller financial cushions, women are more vulnerable to unexpected economic obstacles, such as a job loss, divorce, or single parenthood. And according to U.S. Census Bureau statistics, women are more likely than men to be living in poverty throughout their lives.3

Women are more likely to take career breaks for caregiving. Women are much more likely than men to take time out of their careers to raise children and/or care for aging parents.4 Sometimes this is by choice. But by moving in and out of the workforce, women face several significant financial implications:

  • Lost income, employer-provided health insurance, retirement benefits, and other employee benefits
  • Less savings
  • A potentially lower Social Security retirement benefit
  • Possibly a tougher time finding a job, or a comparable job (in terms of pay and benefits), when reentering the workforce
  • Increased vulnerability in the event of divorce or death of a spouse

In addition to stepping out of the workforce more frequently to care for others, women are more likely to try to balance work and family by working part-time, which results in less income, and by requesting flexible work schedules, which can impact their career advancement (and thus the bottom line) if an employer unfairly assumes that women's caregiving responsibilities will come at the expense of dedication to their jobs.

Women are more likely to be living on their own. Whether through choice, divorce, or death of a spouse, more women are living on their own. This means they'll need to take sole responsibility for protecting their income and making financial decisions.

Women sometimes are more conservative investors. Whether they're saving for a home, college, retirement, or a trip around the world, women need their money to work hard for them. Sometimes, though, women tend to be more conservative investors than men,5 which means their savings might not be on track to meet their financial goals.

Women need to protect their assets. As women continue to earn money, become the main breadwinners for their families, and run their own businesses, it's vital that they take steps to protect their assets, both personal and business. Without an asset protection plan, a woman's wealth is vulnerable to taxes, lawsuits, accidents, and other financial risks that are part of everyday life. But women may be too busy handling their day-to-day responsibilities to take the time to implement an appropriate plan.

STEPS WOMEN CAN TAKE

In the past, women may have taken a less active role in household financial decision making. But, for many, those days are over. Today, women have more financial responsibility for themselves and their families. So it's critical that women know how to save, invest, and plan for the future. Here are some things women can do:

Take control of your money. Create a budget, manage debt and credit wisely, set and prioritize financial goals, and implement a savings and investment strategy to meet those goals.

Become a knowledgeable investor. Learn basic investing concepts, such as asset classes, risk tolerance, time horizon, diversification, inflation, the role of various financial vehicles like 401(k)s and IRAs, and the role of income, growth, and safety investments in a portfolio. Look for investing opportunities in the purchasing decisions you make every day. Have patience, be willing to ask questions, admit mistakes, and seek help when necessary.

Plan for retirement. Save as much as you can for retirement. Estimate how much money you'll need in retirement, and how much you can expect from your savings, Social Security, and/or an employer pension. Understand how your Social Security benefit amount will change depending on the age you retire, and also how years spent out of the workforce might affect the amount you receive. At retirement, make sure you understand your retirement plan distribution options, and review your portfolio regularly. Also, factor the cost of health care (including long-term care) into your retirement planning, and understand the basic rules of Medicare.

Advocate for yourself in the workplace. Have confidence in your work ability and advocate for your worth in the workplace by researching salary ranges, negotiating your starting salary, seeking highly visible job assignments, networking, and asking for raises and promotions. In addition, keep an eye out for new career opportunities, entrepreneurial ventures, and/or ways to grow your business.

Seek help to balance work and family. If you have children and work outside the home, investigate and negotiate flexible work arrangements that may allow you to keep working, and make sure your spouse is equally invested in household and child-related responsibilities. If you stay at home to care for children, keep your skills up-to-date to the extent possible in case you return to the workforce, and stay involved in household financial decision making. If you're caring for aging parents, ask adult siblings or family members for help, and seek outside services and support groups that can offer you a respite and help you cope with stress.

Protect your assets. Identify potential risk exposure and implement strategies to reduce that exposure. For example, life and disability insurance is vital to protect your ability to earn an income and/or care for your family in the event of disability or death. In some cases, more sophisticated strategies, such as other legal entities or trusts, may be needed.

Create an estate plan. To ensure that your personal and financial wishes will be carried out in the event of your incapacity or death, consider executing basic estate planning documents, such as a will, trust, durable power of attorney, and health-care proxy.

Women and Money: Taking Control of Your Finances

As a woman, you have financial needs that are unique to your situation in life. Perhaps you would like to buy your first home. Maybe you need to start saving for your child's college education. Or you might be concerned about planning for retirement. Whatever your circumstances may be, it's important to have a clear understanding of your overall financial position. 

That means constructing and implementing a plan. With a financial plan in place, you'll be better able to focus on your financial goals and understand what it will take to reach them. The three main steps in creating and implementing an effective financial plan involve.

  • Developing a clear picture of your current financial situation 
  • Setting and prioritizing financial goals and time frames 
  • Implementing appropriate saving and investment strategies 

 DEVELOPING A CLEAR PICTURE OF YOUR CURRENT FINANCIAL SITUATION

The first step to creating and implementing a financial plan is to develop a clear picture of your current financial situation. If you don't already have one, consider establishing a budget or a spending plan. Creating a budget requires you to: 

  • Identify your current monthly income and expenses 
  •  Evaluate your spending habits 
  • Monitor your overall spending 

To develop a budget, you'll need to identify your current monthly income and expenses. Start out by adding up all of your income. In addition to your regular salary and wages, be sure to include other types of income, such as dividends, interest, and child support.

Next, add up all of your expenses. If it makes it easier, you can divide your expenses into two categories: fixed and discretionary. Fixed expenses include things that are necessities, such as housing, food, transportation, and clothing. Discretionary expenses include things like entertainment, vacations, and hobbies. You'll want to be sure to include out-of-pattern expenses (e.g., holiday gifts, car maintenance) in your budget as well. 

To help you stay on track with your budget:

  • Get in the habit of saving--try to make budgeting a part of your daily routine
  • Build occasional rewards into your budget
  • Examine your budget regularly and adjust/make changes as needed

SETTING AND PRIORITIZING FINANCIAL GOALS

The second step to creating and implementing a financial plan is to set and prioritize financial goals. Start out by making a list of things that you would like to achieve. It may help to separate the list into two parts: short-term financial goals and long-term financial goals.

Short-term goals may include making sure that your cash reserve is adequately funded or paying off outstanding credit card debt. As for long-term goals, you can ask yourself: Would you like to purchase a new home? Do you want to retire early? Would you like to start saving for your child's college education?

Once you have established your financial goals, you'll want to prioritize them. Setting priorities is important, since it may not be possible for you to pursue all of your goals at once. You will have to decide which of your financial goals are most important to you (e.g., sending your child to college) and which goals you may have to place on the back burner (e.g., the beachfront vacation home you've always wanted).

 

IMPLEMENTING SAVING AND INVESTMENT STRATEGIES

After you have determined your financial goals, you'll want to know how much it will take to fund each goal. And if you've already started saving towards a goal, you'll want to know how much further you'll need to go.

Next, you can focus on implementing appropriate investment strategies. To help determine which investments are suitable for your financial goals, you should ask yourself the following questions: 

  • What is my time horizon? 
  • What is my emotional and financial tolerance for investment risk? 
  • What are my liquidity needs? 

Once you've answered these questions, you'll be able to tailor your investments to help you target specific financial goals, such as retirement, education, a large purchase (e.g., home or car), starting a business, or increasing your net worth. 

MANAGING YOUR DEBT AND CREDIT

Whether it is debt from student loans, a mortgage, or credit cards, it is important to avoid the financial pitfalls that can sometimes go hand in hand with borrowing. Any sound financial plan should effectively manage both debt and credit. The following are some tips to help you manage your debt/credit:

  • Make sure that you know exactly how much you owe by keeping track of balances and interest rates
  • Develop a short-term plan to manage your payments and avoid late fees
  • Optimize your repayments by paying off high-interest debt first or take advantage of debt consolidation/refinancing

UNDERSTANDING WHAT'S ON YOUR CREDIT REPORT

An important part of managing debt and credit is to understand the information contained in your credit report. Not only does a credit report contain information about past and present credit transactions, but it is also used by potential lenders to evaluate your creditworthiness. 

What information are lenders typically looking for in a credit report? For the most part, a lender will assume that you can be trusted to make timely monthly payments against your debts in the future if you have always done so in the past. As a result, a history of late payments or bad debts will hurt your credit. Based on your track record, if your credit report indicates that you are a poor risk, a new lender is likely to turn you down for credit or extend it to you at a higher interest rate. In addition, too many inquiries on your credit report in a short time period can make lenders suspicious.

Today, good credit is even sometimes viewed by potential employers as a prerequisite for employment--something to think about if you're in the market for a new job or plan on changing jobs in the near future. 

Because a credit report affects so many different aspects of one's financial situation, it's important to establish and maintain a good credit history in your own name. You should review your credit report regularly and be sure to correct any errors on it. You're entitled to a free copy of your credit report from each of the three major credit reporting agencies once every 12 months. You can go to www.annualcreditreport.com for more information. 

WORKING WITH A FINANCIAL PROFESSIONAL

Although you can certainly do it alone, you may find it helpful to work with a financial professional to assist you in creating and implementing a financial plan. 

A financial professional can help you accomplish the following: 

  • Determine the state of your current affairs by reviewing income, assets, and liabilities 
  • Develop a plan and help you identify your financial goals 
  • Make recommendations about specific products/services 
  • Monitor your plan 
  • Adjust your plan as needed 

Tip: Keep in mind that unless you authorize a financial professional to make investment choices for you, a financial professional is solely there to make financial recommendations to you. Ultimately, you have responsibility for your finances and the decisions surrounding them. There is no assurance that working with a financial professional will improve investment results.

The accompanying pages have been developed by an independent third party. Commonwealth Financial Network is not responsible for their content and does not guarantee their accuracy or completeness, and they should not be relied upon as such. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Commonwealth does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice.  Securities and advisory services offered through Commonwealth Financial Network,® Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency.

This communication is strictly intended for individuals residing in the state(s) of CA, DC, DE, FL, GA, LA, MD, NJ, NY, NC, PA and TX. No offers may be made or accepted from any resident outside the specific states referenced. 

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.

For Women, A Pay Gap Could Lead to a Retirement Gap

Women in the workforce generally earn less than men. While the gender pay gap is narrowing, it is still significant. The difference in wages, coupled with other factors, can lead to a shortfall in retirement savings for women.

STATISTICALLY SPEAKING

Generally, women work fewer years and contribute less toward their retirement than men, resulting in lower lifetime savings. According to the U.S. Department of Labor:

  • 56.7% of women work at gainful employment, which accounts for 46.8% of the labor force
  • The median annual earnings for women is $39,621 — 21.4% less than the median annual earnings for men
  • Women are more likely to work in part-time jobs that don't qualify for a retirement plan
  • Of the 63 million working women between the ages of 21 and 64, just 44% participate in a retirement plan
  • Working women are more likely than men to interrupt their careers to take care of family members
  • On average, a woman retiring at age 65 can expect to live another 20 years, two years longer than a man of the same age

All else being equal, these factors mean women are more likely than men to face a retirement income shortfall. If you do find yourself facing a potential shortfall, here are some options to consider.

PLAN NOW

Estimate how much income you'll need. Find out how much you can expect to receive from Social Security, pension plans, and other available sources. Then set a retirement savings goal and keep track of your progress.

SAVE, SAVE, SAVE

Save as much as you can. Take full advantage of IRAs and employer-sponsored retirement plans such as 401(k)s. Any investment earnings in these plans accumulate tax deferred — or tax-free, in the case of Roth accounts. Once you reach age 50, utilize special "catch-up" rules that let you make contributions over and above the normal limits (you can contribute an extra $1,000 to IRAs, and an extra $6,000 to 401(k) plans in 2017). If your employer matches your contributions, try to contribute at least as much as necessary to get the full company match — it's free money. Distributions from traditional IRAs and most employer-sponsored retirement plans are taxed as ordinary income. Withdrawals prior to age 59½ may be subject to a 10% federal income tax penalty.

DELAY RETIREMENT

One way of dealing with a projected income shortfall is to stay in the workforce longer than you had planned. By doing so, you can continue supporting yourself with a salary rather than dipping into your retirement savings. And if you delay taking Social Security benefits, your monthly payment will increase.

THINK ABOUT INVESTING MORE AGGRESSIVELY

It's not uncommon for women to invest more conservatively than men. You may want to revisit your investment choices, particularly if you're still at least 10 to 15 years from retirement. Consider whether it makes sense to be slightly more aggressive. If you're willing to accept more risk, you may be able to increase your potential return. However, there are no guarantees; as you take on more risk, your potential for loss (including the risk of loss of principal) grows as well.

CONSIDER THESE COMMON FACTORS THAT CAN AFFECT RETIREMENT INCOME

When planning for your retirement, consider investment risk, inflation, taxes, and health-related expenses — factors that can affect your income and savings. While many of these same issues can affect your income during your working years, you may not notice their influence because you're not depending on your savings as a major source of income. However, these common factors can greatly affect your retirement income, so it's important to plan for them..