A great deal has changed in America since the Social Security Administration was created by President Franklin D. Roosevelt in the 1930s, but the program has not kept up with today’s family dynamics. Nowhere is that more apparent than in the realm of Social Security retirement and disability benefits, which are contingent upon obtaining a specific number of work credits over the course of your working life.
Present-day American women spend, on average, ten years out of the workforce, serving as caregivers, either to children, aging parents, or some combination of the two. Although caregiving work is important, Social Security’s retirement benefits’ structure does not consider it economically valuable. Employers collect Federal Insurance Contributions Act (FICA) taxes from income withholdings, and those are the funds used to pay for retirement benefits. Therefore, if you don’t work at a job that withholds FICA taxes and pays into Social Security, your work doesn’t count and will not contribute toward your future retirement benefits.
In addition, you can only collect Social Security retirement benefits if you have worked in jobs that pay into Social Security for a specific amount of time. For jobs that withhold FICA taxes, you can earn up to four work credits each year, and you must have at least ten years’ worth of work to be able to retire and collect retirement benefits from Social Security. So, for example, if you are a woman who leaves the workforce to raise children before you’ve earned at least forty work credits, you will have to go back to work again before you can retire if you hope to collect Social Security retirement benefits.
Women also typically earn far less than men do over the course of their working lives. That means that when their retirement benefits are being calculated, less lifetime income factors in, which will result in women’s retirement benefits frequently being less than men’s. Women usually benefit from smaller pensions once they leave the workforce and are less likely to be covered by private retirement plans, which reduces the money available to them outside of Social Security retirement payments. Since women statistically live longer than men do, they will ultimately have fewer financial resources to work with to support themselves longer in retirement.
In response to these disparities, Social Security has taken steps to become more equitable. They have raised the amounts of benefits for surviving spouses, so a woman who is dependent upon the work record of a deceased spouse will receive more money. Social Security has also removed the requirement that a divorced wife proves she is dependent upon her ex-spouse in order to collect spousal benefits, and the number of years that a couple must have been married for a spouse to qualify for benefits on the ex-spouse’s record was reduced.
A couple of years ago, Nationwide Insurance conducted a survey and found that 62% of women expect their Social Security retirement benefits to be their primary source of income in retirement. Unfortunately, Social Security retirement benefits are designed to replace only 40% of pre-net earnings; therefore, the sooner women take the long-view on planning for their retirement, the better prepared they will be to handle a starker reality.