Women Depend on Social Security More Than Men: Is Their Retirement at Risk?
Written by
Gabrielle Olya
Edited by
Brendan McGinley
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Social Security was never designed to cover your entire retirement, yet many women expect it to play a major role. A recent Transamerica Center for Retirement Studies survey found that 27% of women workers expect Social Security to be their primary source of retirement income, compared with just 19% of men.
This reliance is concerning because the Social Security trust fund is projected to be depleted by 2033, which could lead to benefit cuts if no reforms are made.
In this “Financially Savvy Female” column, we chat with Catherine Collinson, CEO of the Transamerica Institute, about why women depend more on Social Security — and how they can protect their financial future.
What are some possible reasons that more women than men plan to rely on Social Security?
In a separate survey report on Social Security, we offer gender comparisons among people who are retired, and a higher percentage of women retirees are reliant on Social Security than men.
There are a number of contributing factors:
- The persistence of the gender pay gap
- Women often take time out of the workforce for parenting and caregiving
- When women do come back into the workforce, it’s extremely difficult to find work, especially at the same level of pay, because the world changes so quickly
All of these factors create headwinds and work against women in terms of building [retirement savings].
More than 3 in 4 women workers (77%) agree with the statement, “I am concerned that when I am ready to retire, Social Security will not be there for me.” Given this, is it a mistake for women to plan for Social Security to be their primary source of retirement income?
The way the survey question was posed, it’s what do you expect versus [your ideal] plan. What we could do is flip the script and say, how can women financially plan for greater personal savings and employer benefits to potentially avoid over-reliance on Social Security?
The greatest and single most important ingredient to achieving a financially secure retirement is access to meaningful employment with retirement benefits throughout your working life. One thing that women can do is save early and save consistently over time. Take advantage of tax-advantaged savings opportunities — a 401(k), or, if not offered such a plan, an individual retirement account (IRA) — and strive to grow those savings.
Another big thing women can do is build emergency savings to help avoid the need to tap into retirement savings before retirement.
Should women be worried about the future of Social Security?
The trust fund is estimated to be depleted within the next 10 years. If reforms are not implemented, then there would be an across-the-board cut in benefits. That’s not the same as ceasing to exist. However, a reduction in benefits, if it’s something that you’re counting on, could be problematic for you.
What can women do now to prepare for the possibility of Social Security benefits being reduced?
One of the things that people can do is, first of all, learn all about their benefits. Our survey findings illustrate that both women and men don’t know as much as they should about their Social Security benefits in terms of how they work, claiming strategies and even the amounts that they should expect to receive.
The next thing is, as you’re creating financial plans for retirement, know that there could be a change in benefits. For example, if there are no reforms implemented, there would be an across-the-board reduction, and it’s around 20% every year. So if you’re expecting $2,000 a month from Social Security and there’s a 20% cut, that would mean you would only get $1,600 a month. It’s not likely that that will ever materialize, but it’s one way to think about it in your planning.
Come up with three scenarios [and] model these three scenarios:
- A base case, which is based on the current [situation]
- A best-case scenario for if things go better in different areas — maybe investment returns between now and retirement are better, or you get a windfall
- A worst-case scenario where you can look at, what if I did experience a reduction in benefits, how would that affect my overall financial picture?
Understand what the impact would be, and with that understanding, then you can think of ways to help mitigate that impact.
A big one is thinking about your retirement age. What if you were to work longer and then start receiving Social Security benefits at an older age? There are benefits of that — you’re bringing in income [longer] and presumably have [more] funds available to save; you’re contributing to Social Security, so you’re boosting your benefits that way; and if you’re claiming at age 70, you’re receiving a larger monthly check.
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