Wives Pay Price to Retire with Husbands

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Wives like to retire around the same time as their older husbands – so they can play. But what a difference the baby boom generation has made.

For boomer wives, as members of the first generation of women to enter the U.S. labor force en masse, there can be a steep cost to leaving the labor force at a relatively young age to retire with an older husband. New research by Nicole Maestas of the Harvard Medical School bears out this logic.

It’s obvious that working wives can increase their earnings from work by resisting the urge to retire at a relatively young age. And married women generally earn much more, relative to their husbands, than in the past.

But, more often than their mothers and grandmothers, boomer wives can increase their own Social Security benefits by continuing to work.

To understand how this works, compare boomers with their grandmothers. Their grandmothers were probably housewives for most of their lives and worked sporadically or part-time. As a result, their husbands’ earnings determined the size of the spousal retirement benefits they received from Social Security.

The situation is very different for boomer wives, who often have worked enough to earn their own benefits and wouldn’t qualify for a spousal benefit. Social Security calculates their benefits, as they do for all workers, using the average of her highest 35 years of earnings. But here’s the rub: many boomer mothers still haven’t accumulated 35 years of substantial earnings, because they took some time off or worked part-time to raise children.

By retiring later and replacing those early, zero- or low-earning years in their Social Security records, wives can significantly increase the earnings record on which their own benefits are based.   (A second bump comes from the standard increases in every worker’s monthly benefit of roughly 7.5% for each year they delay signing up for their benefits – though that’s not the central issue Maestas is analyzing in her research.)

A boomer widow is much like her widowed grandmother.  When the husband dies, she’ll typically receive a survivor benefit, because boomer husbands generally earn more over their careers than their wives. That’s how Social Security works.

But Maestas estimated that by working until 70, rather than retiring at 62, boomer wives can increase their “Social Security wealth” – the total value today of all of their future monthly benefits – by
9 percent, on average.

In contrast, working past age 62 has little or no effect on a husband’s Social Security benefit, because he typically already has 35 years of substantial earnings.

Maestas concludes that the additional wealth from continuing to work “can place married women on par with married men in terms of the lifetime resources available to them in the latter part of life.”

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We’re boomers; my wife and I both retired early (and had similar earnings histories) – she retired first; both of us plan to hold off collecting Social Security until later. That’s the solution – having a good understanding of one’s financial status, perhaps retiring early (if that’s what one chooses), and then strategically living off of investments/savings until whatever time in the future Social Security is claimed.

Little time was spent outside the workforce raising kids because the grandparents helped raise the grandkids – just as we (in retirement) are helping raise our three grandkids so that their parents can be fully employed.

This is not complicated stuff – it just takes making good personal choices (back to that common theme again).

Sherry Christensen

Well written article. Women in the past sacrificed their own careers and future retirement benefits to stay home to raise children and support their husband’s career. Therefore they must work longer than their spouse in order to receive comparable Social Security benefits. Seems like a bit of an injustice.

Larry Littlefield

Another aspect: for those in the middle to upper-middle class, the net loss of income may be greater than the gross loss.

As the second highest earning spouse (my situation though I am male) one’s entire income is often at a high federal and state income tax rate, as it is over and above the spouse’s income, but also at a full payroll tax rate, because it is under the cutoff or around $110,000 per year.

The marginal tax rate for second earning spouses can be so great that it doesn’t really pay to take on additional work.

With the higher earning spouse out of the workforce, the marginal tax rate on the second spouse is much, much lower.

Val Reader

Social Security is broke, thus the political talk now is about how to handle this issue AFTER the November election. Discussion includes mean testing for what you already paid for over a lifetime.

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