May 7, 2019
Social Security Benefits Stump Workers
A majority of workers do not know a crucial piece of information about their retirement: how much married couples can expect to receive from Social Security.
The program will one day be the most important source of income for millions of Americans. But they showed their lack of understanding of how benefits work in a recent survey by researchers at RAND.
A previous blog covering the same survey reported on workers’ poor knowledge of the survivor benefit for widows. This blog focuses on the other benefit for couples: the spousal benefit.
Social Security works a little differently for a married couple than for a single worker, whose future benefit check will simply be determined by his or her earnings history.
For the highest-earning spouse in a working couple – usually the husband – the size of his monthly check is also based on his past earnings. But his wife’s benefit is complicated. If she didn’t work, the rules entitle her to a spousal benefit equal to half of her retired husband’s benefit. If she did work, her benefit is based on her work history – with an exception. If her benefit is less than half of her husband’s, Social Security increases her monthly check to half of his check.
Only one in three of the people surveyed understood how this works, probably partly because of the complexity.
Most workers also had misconceptions about other aspects of the program. For example, only about one in four knew that a couple must be married for more than a year for the lower-paid person to receive the spousal benefit. If a couple has divorced, the lower-earning ex-spouse gets the spousal benefit only if the marriage lasted more than 10 years. Again, just one in four workers knew this important rule.
Couples of all ages should know the rules about a program they will rely on – no retirement plan is complete without this information. …Learn More
April 25, 2019
Do Couples Save Enough for Two?
Since only about half of all private sector workers currently have access to an employer 401(k) plan, it’s not at all unusual for spouses who are both working to have only one saver in the family.
When that’s the case, is the person who is contributing to the employer retirement plan saving for two? The answer is definitely not, concludes a new study by the Center for Retirement Research.
The challenge for couples living on two paychecks is that they have to save more money to maintain their current lifestyle after they retire. But households with two earners and only one saver end up saving less than others – only about 5 percent of the couple’s combined incomes, compared with more than 9 percent when both spouses are working and saving, the study found.
Couples who rely on a lone saver need that person to pick up the slack. Employers could help them if they considered the employee’s family situation when setting a 401(k) contribution rate in plans that automatically enroll workers. …Learn More
April 18, 2019
Know the Social Security Survivor Benefit
My divorced aunt did not work while she was raising eight children. After her former husband died, she was pleasantly surprised to learn she could start collecting his Social Security.
She has a lot of company. Nearly two out of three men and women in a new survey by RAND were unaware of this rule: a divorced person who was married for at least 10 years is entitled to the deceased spouses’s survivor benefit. In fact, she would even get the benefit if he remarried.
In the case of couples who were still married when the spouse died, the marriage had to last only nine months for the survivor to get the benefit. Fewer than half of the people surveyed by the RAND researchers were aware of this rule.
The responses were no more impressive for some of the other questions about Social Security’s survivor benefit. This benefit is based on the higher-earning spouse’s work record – typically the husband. Even a wife who used to work and is collecting Social Security based on her work record is eligible to switch to her husband’s benefit after he dies – if his check is larger than hers.
To make the switch in this particular case, the widow must file with the Social Security Administration either online or at a local office. (However, if the wife never worked and is at retirement age, she will automatically start receiving her late-husband’s check.)
Unmarried partners sometimes operate under a misconception too: three out of four think, incorrectly, either that unmarried people can get the survivor benefit, or they don’t know.
One thing to note about this study is that Americans of all ages were surveyed, and it is not surprising that young adults would have little knowledge of program benefits intended for widows. But age doesn’t seem to bring wisdom: the results were equally dismal in a similar earlier survey of individuals who were at least 50 years old.
April is National Social Security Month. Couples should celebrate by learning more about how Social Security works – it’s critical to a widow’s standard of living. …Learn More
August 9, 2018
Divorce Very Bad for Retirement Finances
When a marriage ends in divorce, there are no fewer than seven ways that it could damage a person’s finances.
Divorce can rack up costly legal fees; force a house or stock sale in a down market; increase living expenses; increase tax rates; hamper the ability of the primary caregiver – mothers – to earn money; require fathers to pay alimony; and reduce each partner’s access to credit.
A new study looking at their impact on workers’ future finances concludes that divorce – the fate of four in 10 marriages – “substantially increases the likelihood” that their standard of living will decline after they retire. …Learn More
July 24, 2018
Mom-Dad Pay Gap Grows After First Child
Moms don’t need a research study to tell them that their earnings will never be high as dads’.
Nevertheless, a new study confirms this – and the pay gap may be larger than some suspect. In the two years surrounding the baby’s birth, mothers’ earnings fall by 12 percent, on average, as their careers stall or they take a hiatus from work to care for the child. Meanwhile, fathers’ careers clip along, with bonuses, pay raises, more hours, or better jobs bumping up their pay by 34 percent.
Mothers don’t get back to their pre-baby income levels until the child is 9 or 10 years old. The mom-dad wage gap will never be smaller than it was before the baby, because “the earnings of the male spouse do not undergo the initial shock” of childbirth, according to the U.S. Census Bureau researchers. They tracked wage changes starting in 1978, when baby boomer women were streaming into the labor force.
Their comparison of the husband-wife pay gap helps to overcome a big disadvantage of analyzing the popularized version of the gap: women earn 82 cents for every dollar a man earns. This headline statistic applies to all men and all women.
It’s neater to compare spouses, because both of them experience the baby bump at the same time, allowing estimates of the changes in each one’s earnings during the same time period and life circumstances. Just as important, husbands and wives usually bring to a marriage similar levels of education, the major determinant of earnings throughout workers’ lives.
The big issue in this study, however, is that data limitations prevented the researchers from controlling for the hours each spouse works after the baby’s birth. There are several potential explanations for mothers’ smaller paychecks but reduced hours are a major reason.
Maternity leave can be the start of several years of part-time employment at lower pay or even a hiatus from work for childrearing. If new mothers do return to the labor force fairly quickly, prioritizing the child can mean a job with less responsibility and lower pay than they earned in the past.
The increasing pay gap illuminates the financial sacrifices that moms make. Here are other findings in the study: …Learn More