I want you to get Social Security survivor benefits right before you ever claim.
Because if you don't, it can cost your survivors tens of thousands of dollars in lost benefits (even hundreds of thousands).
I've seen so many people make Social Security claiming decisions without a thought about survivor benefits.
DON'T BE ONE OF THOSE PEOPLE!
Read on to learn how to avoid costly mistakes for your surviving spouse.
Social Security basics
Social Security retirement benefits are based on earnings.
In 2018, each time you earn $1,320 of wages, you gain one credit (or quarter). Once you've earned $5,280, you've earned 4 credits (4 quarters). To qualify for a retirement benefit, you must have accumulated 40 credits or 10 years of work.
Granted, if that's all you earn, you're in trouble. Obviously, for most people, that is not the case.
The 40 credits are the opening bid.In 2018, you pay FICA (Social Security) taxes on your first $128,400 of earned income.
SSA averages your highest 35 years of earnings to come up with an Average Indexed Monthly Earnings (AIME) number. (Details are here – The Top 4 Reasons to Delay Claiming).
Once they have that number, they apply three “bend points” (only the government could come up with this description) to calculate your primary insurance amount (PIA).
The PIA the amount you will get if you apply at your full retirement age (FRA).
SSA calculates reductions for claiming early or additions for waiting off of your PIA.
Here's a table listing current FRA ages.
|Year of Birth||Full Retirement Age|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 monhts|
|1960 and later||67|
Costs of claiming early
According to the Center for Retirement Research, at Boston College,42% of men and 48% of women claim their Social Security retirement at age 62, the soonest they can apply.
Did you know that has a dramatic impact on your spouse's survivor benefits? Read on and I'll explain why.
As I mentioned in the beginning, claiming early is costly when it comes to survivor benefits.
If you haven't already, I encourage you to read my recent post, The Top 4 Reasons to Delay Claiming Social Security.
Here, I'll offer a good foundation for understanding the basics of Social Security (how SSA calculates benefits, earnings record, determining AIME, etc.).
Here's a chart showing the percentages of benefits at various claiming ages.
|PIA of $2,001||Benefit %||Benefit %|
|Apply at age||PIA age 66||Dollars||PIA age 67||Dollars|
Free Social Security Cheat Sheet
Social Security is confusing, isn't it? If you're willing to give up your email address, I'll send you a cheat sheet with some of the most common terms to help remove at least some of the confusion around the subject.
Why when you claim matters for survivor benefits
You can clearly see that when you claim Social Security determines your benefit. The same is true for determining survivor benefits.
There are 2 primary factors that determine your survivor benefits.
- The age at which the deceased spouse originally claimed their benefit (the original benefit)
- The age at which the widow claims their benefit (the actual benefit)
Let's discuss each one of these in turn.
Age at which the deceased spouse claimed
Like the chart above shows, if the deceased spouse claims their benefit prior to reaching FRA, the survivor benefit will be reduced.
The amount of reduction depends on the age at which the deceased spouse first claimed.
The survivor benefit will be the higher of the deceased spouse's benefit or 82.5% of their PIA.
If they claimed at FRA, the benefit will be the decedent's PIA.
If they claimed after FRA, the benefit includes delayed credits. Remember, delayed credits add 8% per year to the benefit until reaching age 70.
For someone with an FRA of age 66, that means a potential 32% increase if the deceased spouse waited until age 70 to claim.
An FRA of age 67 brings a potential 24% increase in benefit at age 70.
The widow's age exception
Widows have an exception to the age 62 early starting date. They can apply for survivor benefits as soon as age 60.
If she claims her survivor benefit at age 60, she will receive 71 1/2% of her husband's PIA. That's a big reduction!
However, if she waits until her FRA or later, she receives 100% of the original benefit.
Let's look at some examples to help clarify.
John and Jane Doe are married. Both are baby boomers with an FRA of age 66.
John has a PIA of $2,000. Jane's PIA is $1,200.
John claims at age 62 giving him a benefit that's 75% of his PIA or $1,500.
John dies. Jane's survivor benefit depends on when she claims.
If Jane claims at her FRA, her survivor benefit will be 82 1/2% of John's PIA or $1,650. Why not the $1,500 that John received?
There's a special floor for survivor benefits of 82 1/2% of the deceased spouse's PIA.
However, if she claims at age 60 (earliest possible for surviving spouses), the benefit is 71 1/2% of his PIA or $1,430.
You can clearly see from this example the impact claiming early has on survivor benefits.
Spouse dies while both are receiving benefits
This is one area where SSA gets it right.If both spouses are receiving benefits when one spouse dies, the SSA allows the survivor to switch to the higher of the two benefits.
Let's go back to John and Jane Doe.
We know John's benefit is $2,000. Jane's benefit is $1,200, much lower than John.
Jane notifies the SSA of John's death. They require Jane to complete form SSA -10. She must also supply the proper documents (death certificate, proof of birth, proof of citizenship, etc.).
Once SSA is satisfied, they will automatically switch Jane's benefit to the higher $2,000 benefit.
Not knowing this or ignoring it because you thought it didn't matter can cost you.
Example of spouse delayed claiming
John decides to wait to claim until age 70. Because he waited, his benefit is 132% of his $2.000 PIA or $2,640. That's quite a raise, right?
That number doesn't include any potential increase from inflation. SSA uses an inflation rate of 2.6% in their calculations.
John dies at age 78.
If Julie decides to claim her benefit at age 60 (the earliest for widows) her benefit is 71 1/2% of $2,640 or $1,887.
That's higher than the example above when John claimed early and her survivor benefit was $1,430. That additional $457 in monthly income amounts to an additional $109,680 of she lives another 20 years.
That ain't chump change!
Here's how Julie gets an even bigger rise in income.
If she waits to claim survivor benefits until after she reaches her FRA of 66, she gets John's full $2,640 benefit for the rest of her life.
That's a monthly difference of $1,210 or $14,500 annually.
If Jane lives another 20 years, she receives an additional $290,400 in lifetime income!
Do you see why understanding this before you apply is so important?
You might also like:
Rules for survivor benefits
You must meet several qualifications to receive a survivor benefit on a spouse as follows:
- You must have been married at least 9 months at date of death (except in case of an accident)
- The survivor must be at least 60 for a reduced benefit (50 if disabled) or FRA for full benefit
- A survivor benefit is not available if the widow(er) remarries before age 60 (or 50 for disabled survivor) unless that marriage ends
Divorced spouse survivor benefits
If you're divorced and your spouse dies, you may be eligible to receive a survivor benefit from your ex-spouse.
The rules are a little different as follows:
- Divorced-spouse survivor benefits available if the marriage lasted at least 10 years
- You're at least 60 years old, or 50 if disabled
- You haven't remarried before the age of 60
- Your prior spouse has died and had contributed sufficiently to Social Security before his or her death
If you remarry after age 60, your divorced spousal survivor benefit will not be affected.
The same claiming rules apply to divorced survivor benefits as they do to a non-divorced spouse (reduction for early filing, delayed credits for waiting, paying out the higher of the 2 eligible benefits, etc.)
Unlike divorced spousal benefits from living ex-spouse's, you cannot get more than one survivor benefit from an ex-spouse.
If you have more than one ex-spouse that dies, you must notify the SSA.
They will pay you the higher of the two benefits.
Free PDF: Will Working Longer Help - Or Hinder Your Social Security Benefit?
What happens to my benefit if I claim early and work? If I claim at or after full retirement age and work, is my benefit changed? Get answers to these and other questions in this FREE PDF. All I need is your email to know where to send it.
Tips to maximize your benefit
I hope you see that in order to maximize your survivor benefit, you need to maximize your own retirement benefit.
Here are a few tips to help you do that.
- Check your earnings record – SSA gets your earnings record from your tax return. Another reminder, my recent post, The Top 4 Reasons to Delay Claiming Social Security, shows how SSA uses your earnings to calculate your AIME, which determines your PIA. (How about those abbreviations!). If your earnings records are inaccurate or if years are missing, your PIA could be lower than it should. Go online to https://www.ssa.gov/myaccount/and check your earnings. If they are off, you can submit documentation to get the record corrected.
- Consider working longer – Working in later years may help eliminate some years counted in your highest 35 where your income was lower. This is especially relevant for stay-at-home moms who went back to work after raising their children. Remember, if you have years of zero income in your highest 35, replacing them with earnings can have a big impact.
- Apply for your benefits at the optimal time – take into consideration your age, your income needs (now and in the future), and your life expectancy. This last point is one I want to emphasize. Planning for a shorter life expectancy by applying early will start your income earlier. But what happens if you live 5, 10, or 15 years or longer? If your plan was to spend down your money based on a shorter life expectancy and you outlive that time frame, where will you get the additional income? The optimal time calculation should include determining if you qualify for spousal benefits.
Social Security is a great benefit that most of us have paid into during our working years. According to almost any survey you choose to cite, Social Security retirement benefits represent the majority of an individual's or family's retirement income.
No matter your economic status or income level, getting Social Security right can add tens to hundreds of thousands of needed dollars to your retirement income. Knowing the rules before you file for your benefits will also help to maximize your survivor benefits.
Ignoring these truths can cost, not only you but your surviving spouse as well.
So, where how do you determine all of my options?
There are a number of calculators, both free and paid, that can help you run the numbers. That's the best place to start.
Two that I have personally used in my financial planning practice are:
SSA also offers numerous calculators to help on their Benefits Planner: Calculators page.
If you have further questions that are not answered here, feel free to email them to me at firstname.lastname@example.org.
Please let me know what you think. Did this article help you better understand survivor benefits? Will it help you make a better decision when you decide to claim? What else would you like to see me cover, whether Social Security or any other personal finance topic?
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