Squared Away Blog

August 9, 2012

Social Security Advice That Harms Wives

Most financial advisers give troubling advice to married couples about when to claim their Social Security benefits, advice that can substantially reduce the wife’s income during retirement.

Social Security rules generally make it more beneficial for the higher-earning spouse – usually the husband – to delay signing up for his benefits well past age 62.  By delaying, he boosts the size of his monthly Social Security check, automatically increasing his wife’s “survivor benefit” after he dies.  This holds true for most couples, whether the wife works or not.

A new survey of U.S. financial advisers provided them with hypothetical couples’ situations and asked how they would advise them on when to start receiving Social Security.  For the couple in excellent or average health, only 20 percent recommended “that the man delay claiming as long as possible.”  This advice leaves most widows with a substantially smaller monthly benefit for years or even decades.

The survey’s finding demonstrates “the lack of understanding of both the benefits of delaying and the compounding factor it can have on the spouse,” said Lisa Schneider, research director for Greenwald & Associates, a private research firm that conducted the study with researchers at the University of Pennsylvania.

In contrast, the study also found that 93 percent of advisers believe they are knowledgeable about how Social Security works.  Advisers at investment companies, Wall Street firms, banks, and insurance companies, as well as independent advisers, completed the survey.

The reason the husband’s decision matters, even when the wife works, is that husbands typically earn more than their wives.  Widows receive Social Security’s “survivor” benefit based on their husband’s work record – rather than their own – because his benefit is usually higher.  So even wives who worked are better off the longer the husband waits.

Their longevity, combined with their lower earnings, make them financially vulnerable when their husbands make the wrong decision.  Of course, the opposite can also occur: a husband can be harmed if his wife earns more, and she claims at age 62.

Matthew Greenwald, president of Greenwald & Associates, said that real-world situations facing financial advisers are often more complex than the hypothetical situations in the survey.  Many factors drive a husband’s decision to sign up for Social Security at age 62: if he is in poor health or if he wants to retire but doesn’t have the savings to cover his expenses until he files for Social Security.

Delaying “is not for everyone,” he said.

The survey also found that just 44 percent of advisers said they were aware that all workers’ Social Security benefits increase with age.  Under federal rules, an individual who is age 62 can increase the size of his or her monthly Social Security check by more than one-third by waiting to file for benefits at age 66 and by more than 75 percent by waiting until 70.

The Greenwald survey raises a cultural question: does the sex of the financial adviser matter?  Are women advisers more sensitive to women’s unique financial issues – longevity being at the top of the list?  Or not?  Share your opinions below!

For more information, consult Social Security’s website or read a report by The Center for Retirement Research, which sponsors this blog.

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