Why More Women Should Work Into Retirement

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It's no secret that women make about $0.78 for every dollar men make in the U.S. But there's another income gap that people often don't consider.

Women -- particularly those who took time out of the workforce to raise a family -- tend to get lower monthly Social Security checks simply because they have fewer years of earning income on the books, according to a working paper recently released by the Center for Retirement Research.

Here's why: Social Security benefits are in large part calculated based on your earnings across the 35 years in which you earned the most (adjusted for inflation). Women who chose to stay home to raise a family tend to have years of zero earnings factored into their benefit calculation, which can dramatically lower their Social Security benefits.

As a result, women in general receive less in monthly benefits than their male counterparts. About 39% of women born between 1941 and 1950 had "zero" years among their top 35 wage-earning, years while only 15% of men had zero years, the study concluded.

But there's an easy way to close the Social Security gap for women: Work longer.

The way Social Security works

Social Security benefits are based on a calculation that takes into account several factors. In order to be eligible to receive Social Security benefits, most workers must earn 40 credits, which translates into about 10 years of work; as of 2016, you'll receive one credit for each $1,260 in earnings, and you can get a maximum of four credits a year.

The largest determiner is a worker's average indexed monthly earnings (AIME), which is calculated based on their highest-35 earning years.

Of those born between 1946 and 1960, woman had an average of 7.7 years of zero earnings, while men averaged 3.2 years of zero earnings, according to a 2000 SSA policy study.Based on that average, let's look at an example to show how much those earnings-free years can impact your benefits.

Jane, has eight "zero" years among her top 35 years of earnings, while Joe who has three "zero" years factored into his AIME.They both earned an average inflation-adjusted income of $50,000 in their working years.

Here's how Jane's benefits would be calculated. First, the SSA would find her average annual earnings across her 35 highest-earning years, which would be $38,571 ($50,000 x 27 years worked / 35 years total). Then that annual income is divided by 12 to produce an AIME of $3,214.

Meanwhile, Joe's 35-year average income would be $45,714 ($50,000 x 32 years worked / 35 years total), and his AIME would come to $3,809.

If we plug in Jane's and Joe's AIME figures into the Social Security benefit formulato get their primary insurance amount (the monthly retirement benefit they're entitled to at their full retirement age), then we find that Jane will receive $1,541 in monthly benefits, while Joe will get $1,732 per month. That's a difference of $190 a month, or $2,284 a year. Remember, they both started with the same average yearly salary.

However, by working longer and thereby replacing five of her "zero" earning years, Jane can catch up to Joe -- and probably save more money for retirement in the process.

Another benefit of working longer

If Jane happens to be approaching retirement age, then there's another benefit to working longer. All workers, male or female, can increase their Social Security benefits by waiting past their full retirement age to claim them. For every year past your full retirement age you hold off on collecting Social Security, you'll get another 8% in monthly benefits. Your full retirement age varies based on when you were born, but for Americans approaching retirement, it's between 66 and 67 (more details here at SSA.gov).

For people like Jane, who have zero-income years to replace, working up to age 70 will not only fill in some zeros and increase their PIA, but also net them an increase in that base amount.

Let's say Jane's full retirement age is 66. If she can replace all her zero-earning years by working to age 70 (assuming her average inflation-adjusted income stays at $50,000), then her PIA will increase to $1,856 -- and those delayed-retirement credits she racked up would boost her benefit another 32% to $2,450 a month.

Do the math

The first step in determining if it's possible to increase your monthly benefits is to check if you have any zero or low earning years. You can do that by starting an online profile on SSA.gov.

If you find you do have zero years that you may want to replace with earning years, then measure for yourself whether returning to work, or working a few extra years, would have an impact on the retirement benefits you'll receive each month. The SSA's online calculator is a helpful tool for estimating how big your benefit might be based on different scenarios.

By spending even a few years longer in the workforce, women can reap greater monthly benefits, guaranteeing a more financially stable retirement. Obviously, you'll have to decide whether working full-time well into your sixties will impact your quality of life. But on the other hand, working -- particularly for women who are going it alone -- is also a great source of social interaction, purpose, and mental and physical activity. So there's more than a financial benefit to staying on the job longer.

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