Social Security helps provide financial support in retirement to millions of recipients, and the formulas that govern how much people receive in benefits ensure that women and men who have identical work records earn identical amounts from Social Security. But despite the gender-neutral calculations inherent in the Social Security system, there's still a wide disparity in actual benefit amounts, with women generally getting the short end of the Social Security stick. Although some of the reasons for this may be alarming to those concerned about women's financial health in retirement, others are natural consequences of the way Social Security works and the incentives available for those who know best how to use the system.
How women and men fare with Social Security benefits
Data from the Social Security Administration look at how much the program pays various types of recipients, with people's benefits separated into hundred-dollar ranges and divided between women and men. Overall, according to the SSA, 19.1 million men and 18.8 million women received Social Security benefits as retired workers, meaning they made claims based on their own work histories.
Yet when you look at what the data shows about women's benefits compared to men's, you'll discover a somewhat troubling fact: Typically, women's Social Security payments are far smaller than men's.
As you can see from the figures above, the typical woman earns far less from Social Security benefits than the typical man does. More than half of all women receive less than $1,000 in monthly Social Security checks, with the largest number of women falling roughly into the $700-$900 range. By contrast, the typical man earns about $1,500 from Social Security, with large numbers of retired men having benefits that fall into the $1,400--$1,800 range -- double what women earn from their Social Security payments.
What's behind Social Security's gender gap?
There are a couple of obvious reasons why Social Security payments for women often lag behind men's benefits. The calculations that determine how much you receive from Social Security depend greatly on your average earnings throughout your career, and the Social Security Administration takes up to 35 years of work history into account in calculating benefits. For those women who have chosen to stay out of the workforce for long periods of time, those zeroes in their earning history lead to lower average earnings for Social Security purposes. Although the progressive nature of Social Security benefits eases the blow of lower average earnings, it nevertheless translates into markedly reduced monthly amounts for retired women.
Furthermore, for many women, the major source of Social Security income is not their own earnings record. Spousal benefits are also available to retirees, and women overwhelmingly outnumber men when it comes to claiming them. In December 2013, 2.2 million women were receiving spousal benefits, compared to fewer than 85,000 men. Because of the way the SSA collects its data, the benefit amounts in the chart above reflect only the retirement element and not the spousal element, and when spousal benefits exceed your own, it's a natural choice for a retired woman to claim Social Security based on a husband's work history rather than on her own.
Making the most of Social Security
In some cases, women's lower benefits are the result of a perfectly rational Social Security claiming strategy for the entire family. For example, in the file as a spouse first, or FAASF, strategy, a married couple might choose to have the lower-earning spouse file for retirement benefits first, opening the door for the higher-earning spouse to file a restricted application for spousal benefits. So long as the higher-earning spouse has reached full retirement age, that won't require filing for that spouse's own retirement benefits, letting them earn delayed-retirement credits before their benefits are paid out. Later, the higher-earning spouse takes benefits at age 70, and that can sometimes enable the other spouse to earn higher spousal benefits as well. Because so many higher-earning spouses are men, women can technically end up being the "losers" in this scenario even when the couple is cooperating actively to maximize their total Social Security take.
So long as pay is unequal between the sexes and career length plays a factor in Social Security benefits, women and men should expect the gender gap in benefits to continue. At least sometimes, though, those disparities hide what in actuality is smart financial planning to maximize Social Security benefits.
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