Often, navigating the Social Security Administration’s rules can be complex and confusing. None more so than trying to determine a surviving spouse’s social security benefit. Nearly every couple will face this problem at some point.
Timing is everything regarding social security surviving spouse benefits. The filing date alone—when you decide to claim social security and when your spouse does—ultimately determines how much you both will receive in Widow or Widowers benefit. Getting your initial claiming strategy right is paramount to maximizing this important benefit.
If the deceased spouse has not begun receiving social security income at the time of death, the survivor’s benefit is based upon the decedent’s primary insurance amount (their social security income at Normal Retirement Age) plus any delayed retirement credits up to the date of death. Delayed retirement credits add about 8% to the social security income received for each year you delay taking your social security benefit beyond your normal retirement date, up to age 70. If this is the case the surviving spouse’s decision to claim social security benefits will be based on their age at the time they file. What this means is if the survivor decides to receive social security income before they reach their normal retirement date, there will be a reduction in income for each year of early filing, even if the deceased spouse had earned delayed retirement credits.
If the deceased spouse had been receiving social security income before their normal retirement date, their benefit and the widow(er)’s benefits are reduced forever, depending on when the initial benefit claim was filed. Generally, you would lose about 8% of social security income for each year you receive social security payments prior to reaching your Normal Retirement Age (NRA). A widow(er)’s benefit is limited to the larger of 82.5% of the deceased spouse’s death primary insurance amount or the reduced income benefit the deceased would have been eligible for if they had lived.
The Social Security Administration provides the following example:
“Mr. B, age 64 on August 3, received reduced retirement income benefit of $350 (primary insurance amount $374.90) for August and September. He died in October. Mrs. B, age 66, comes in, to file for widow's benefits. The retirement income benefit if Mr. B were alive would be $350. 82 1/2 percent of the death primary insurance amount is $309.20 ($374.90 X .825). The life and death primary insurance amounts are the same. The widow’s income benefit will be the higher of the two, $350 in this example.”
Your widow or widower can get benefits at any age if they take care of your child younger than age 16 or disabled, who’s receiving Social Security benefits. If the surviving spouse is disabled, benefits can begin as early as age 50. Unmarried children, younger than age 18 (or up to age 19 if they’re attending elementary or secondary school full time), can also get benefits. Children can get benefits at any age if they were disabled before age 22. Under certain circumstances stepchildren, grandchildren, step-grandchildren, or adopted children may also be eligible for benefits. These circumstances are exempt from the deemed filing rules and do not affect future claims made under their own work record. There is a family maximum to survivor benefits that will vary between 150% and 180% of the deceased worker’s benefit amount.
For divorcees who had been married for ten years or longer, the survivor benefit is available if they have not remarried before age 60. An ex-spouse’s survivor benefit has no effect on the family maximum benefit, so a new spouse and any children can still be eligible to receive survivor benefits based on the same wage earner.
Although a widow may be eligible for benefits based on their own work record, if they file for social security benefits, they will receive the highest benefit they qualify for at the time they file. Some benefits are calculated independently with the larger benefit being paid or the smaller benefit being paid plus the excess amount of the larger one. Other types of benefits are calculated with a carry-over reduction amount from the first benefit to the second.
Although the loss of a loved one is a terrible time to assess and compare your social security filing options, it is important that you choose wisely. If possible, delay the decision until you have had the time to be emotionally ready to face the problem and consult with a trusted financial planner.
Part of Oak Street Advisors’ 10 Financial Commandments for Millennials series, we discuss how lifestyle creep can lead to poor financial decisions and possibly ruin; and how keeping what really matters to us in life in the forefront of our financial lives can steer you away from conspicuous consumption.
“Money has never made man happy, nor will it, there is nothing in its nature to produce happiness. The more of it one has the more one wants.”- Benjamin Franklin
I agree with the last sentence, but there is no doubt that money can buy some happiness. Studies show that earning $75,000 annually buys happy; and $95,000 annually buys really happy.
Taking that into account, the final financial commandment to conquer is a self-assessment of the way you spend your money. Do you spend more on the things that really matter in life-- providing protection for your family, ensuring you have enough assets in retirement, and making memories with the ones you love? Or do you spend more on that new car payment, credit card debt or eating out every night?
Keeping up with the newest trends, cars, boats—you name it, is expensive. You need a safe car your family can rely on, but does it need to have 8 temperature-controlled zones, leather seats with warmers and a sporty trim package? Your family will always need clothes on their backs, but a shirt from Target or Costco provides the same warmth as the one in the mall that costs over $200.
Some of the wealthiest families somehow find a way to spend every penny earned with little to show for it in the end. When you reach the final commandment it’s time to take an honest introspective look at yourself and your household to make sure you’re spending your money in a deliberate way, on things that really matter and build your wealth into the future.
You can control your money, or your money can control you.