The funds provided by retirement accounts - whether it is a pension, IRA or even social security - are a key source of income for women over the age of 65. In this section, we will look at:
Social Security
Whether or not you have taken charge and invested actively, you may already be entitled to certain retirement benefits courtesy of Uncle Sam. Once you stop working, the money set aside for you in Social Security becomes available to you as long as you've met one of the following conditions: -
If you've reached the age of 65 and you, your spouse, or ex-spouse has earned 40 credits, by working at least 40 quarters over the course of your life. (Those born before 1929 may need less than 40 credits).
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If you are eligible for a disability benefit due to a physical or mental impairment.
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If you are a survivor of a family member who earned enough social security credits while they were working.
HerTip: At age 62, you may be eligible to receive reduced benefits. However, if you start your benefits early, your benefits are reduced permanently. Alternatively, if you decide not to collect your retirement benefits until age 70, you then get a higher benefit when you retire.
Consider the following:
The average woman works significantly fewer years than the average man and switches jobs every 4.5 years. But, this does not necessarily disqualify women from social security. As long as you, your spouse, or ex-spouse earn 40 credits, you're still eligible for full social security benefits. Where and when the credits are earned is irrelevant. In 2005, a worker receives one credit for each $920 of earnings, up to the maximum of 4 credits per year (the amount of money needed to earn one credit goes up every year).
Social security makes special provisions for widowed women and their families. A widow may be eligible for survivor benefits if she or her deceased husband earned the credits necessary for retirement benefits, and she is:
- age 60 or older
- age 50 or older and disabled
- any age and caring for a child under age 16.
HerTip: By law, a spouse is always the beneficiary of her/his spouse's pension plan unless they decide otherwise (the amount of money needed to earn one credit goes up every year).
Dependent children are also eligible for survivor's benefits if they are:
- unmarried and under age 18
- under 19 but still a full-time elementary or secondary school student
- 18 or older and disabled (if disabled before age 22 and remain disabled).
Parents of the deceased can also receive social security benefits if the deceased was their primary means of support.
Social Security also has special provisions for divorced women. In certain situations, divorced women are eligible for their ex-husband's social security based on their ex-husband's social security account.
How much will I receive in social security?
Social security payments are based on your earnings throughout your working life. And, within certain limits, these benefits are tied to your income level.
Dual Income Families:
People who are eligible for benefits on more than one work record generally receive the larger benefit amount. If both you and your spouse have been working and earned your own Social Security credits, you have certain options at retirement. For more information about your options, contact a Social Security representative at 1-800-772-1231 or contact your local Social Security office.
Single income families:
- The non-working spouse will receive an amount equal to about 50% of the working spouse's benefit.
- This money is available at the non-working spouse's normal retirement age (65+). If spouses want to get Social Security retirement benefits before they reach full retirement age, the amount of the benefit is reduced permanently, unless the non-working spouse is taking care of a child either under age 16 or who gets Social Security disability benefits.
- A non-working spouse can receive a reduced benefit at age 62, but only when her husband retires, becomes disabled or dies.
How do I "file" to receive my social security benefits?
In order to receive social security checks, you must first "file" for benefits. To file for social security or disability benefits, speak to a social security representative at 1-800-772-1213, or contact your local social security office.
A woman should file for benefits under the following conditions:
- She becomes too disabled to work
- A family breadwinner dies
- She is thinking about retirement
You should speak with a social security representative during the year before the year you plan to retire. All phone conversations are kept confidential so feel free to ask the questions you want!
What documents do I need to file for social security?
- Birth certificate, or other document to prove eligibility
- Marriage certificate if applying as a spouse
- Most recent W2 or tax return if self employed
- Additional documents may be required depending on your circumstances
How do I collect my social security?
After you have filed for benefits, social security checks are mailed to you monthly from the Social Security Administration, or you may set up a direct deposit.
Will I be taxed on my social security?
Yes. 85% of your social security benefits are taxed depending on your situation.
Want to make sure your payments are on track?
You can call the Social Security Administration office toll free at 1-800-772-1213 or contact them on the web at www.ssa.gov for a free personal Earnings and Benefit Estimate Statement. This will tell you how much government records say you have saved for social security.
HerTip: As a rule, the government will only fix errors up to 3 years, 3 months and 15 days after they occur, so if you think you may have a problem with your social security payments, don't wait to give them a call.
Times Are Changing
Social security was never intended to be the only source of income for retirees. It is intended to support other income from savings, investments, pension plans, etc. Saving outside of social security is essential to your financial well being after retirement. In 1997, the average woman received approximately $8,000 per year in social security benefits. At the end of 2003, women's average monthly retirement benefit was $798. Clearly, not enough for most women to live on.
Individual Retirement Accounts (IRAs)
Most people under the age of 70 1/2 with earned income can open up a traditional IRA.
Under current law, for 2005 you can contribute up to $4,000 per year to your traditional IRA ($4,500 if you reach age 50 before 2006). Also, for 2005, if you're married and either you or your spouse does not work, the working partner can contribute up to $4,000 per year into a spousal IRA ($4,500 if age 50 before 2006). Because you are opening an IRA without the support of an employer, you are free to invest your IRA in a multitude of approved investments.
In all cases, the earnings in your traditional IRA are tax deferred. In other words, you won't pay taxes on income on your retirement funds until you retire or receive any disbursement. (Therefore "deferring" the taxes you owe.) This is a key advantage and can translate to big savings in the long run. By not paying certain taxes on your earnings per year, your investment compounds untaxed. This means that your earnings continuously add to your investment total, allowing you to earn interest on a larger amount each year.
HerTip: If you open a traditional IRA before the April 15 tax deadline, you might be eligible to deduct your contribution from the previous year's tax return. Generally, losses incurred on your traditional IRA are not deductible, except under certain circumstances after all amounts in all your traditional IRA accounts have been distributed to you. Depending on your level of earned income and also whether you or your spouse are a participant in a qualified retirement plan, the contribution you make to your traditional IRA may also be tax deductible. Deductions help lower your taxes by your marginal tax rate. So, the higher your tax bracket, the higher your tax savings.
For example, if you have contributed $100 to your pension and you have a 32% tax rate, then you can save $32 on your taxes. If your tax rate is 25%, then you can save $25 from your taxes and so on.
Pay-out:
You can contribute to your traditional IRA until you reach 70 1/2 years of age. You then must start withdrawing capital at the rate given by an IRS schedule. If you have Roth IRA, you can continue to make contributions at any age and you do not have to take distributions from a Roth IRA when you reach 70 1/2. In fact, you don't have to take your distributions at all. In this case, you may pass your assets to your beneficiaries.
HerTip:You may take your money out of a traditional IRA prior to 591/2 under certain conditions. In these cases you still must pay a tax when you take the money out, but you are not subject to the 10% penalty.
The Internal Revenue Service has proposed new simplified minimum distribution regulations for mandatory distributions from IRA's, 401(k), 403(b), profit sharing, Keogh and all other qualified plans. Click here for details.
Employer Provided Qualified Retirement Plans
As a benefit for employees, many companies provide employee retirement plans. As long as you are under the age of 70 ½ and still employed, you are most likely eligible to contribute to the plan offered by your company. There are two main options provided by employers:
1. Defined Benefit Plan
2. Defined Contribution Plans
As with IRAs, although plan participants aged 59 ½ or older are permitted to access funds from their employer sponsored retirement accounts without paying an additional tax penalty, you may opt to leave the money right where it is to grow tax-free until you are 70 1/2. At that point, you will be required to take yearly minimum distributions from any qualified plan supplied by your employer. The same general rule applies to any qualified plan designed for self-employed individuals. Learn More.
HerTip: Click here for a complete comparison chart of each of the retirement plans we have covered here, including distribution rules and requirements.
Continue to: Part VI: Social Security
*WFN at Siebert and Muriel Siebert & Co., Inc. do not provide tax advice.
Introduction