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.
 

If you were planning a vacation you would start with a desired destination, select the dates you can go, determine your budget, and then tweak your plans to fit your budget. It is the same with financial planning. You have to determine where you want to go (how much income or how big a nest egg you need), set a target date for getting there, determine how much you need to save and invest, and then tweak your plan for the realities of your situation.

If you are planning for a down payment on a home you will have to amass a lump sum that you will be spending all at once. So calculating your need is pretty straight forward. If you want to buy a $300,000 house, you will need to save at least a 10% down payment, or $30,000.

If you are planning to send a child to college you can look up the cost of tuition, books, and living expenses at the schools web site. But unless your child is starting school this year you will have to estimate what future expenses might be, or you will surely come up short due to likely increases in costs between now and the time your student enrolls.

So how do you plan for such price increases? Well, if you do a little snooping around you will learn that college costs have been increasing at about twice the level of general inflation. Armed with that and the
number of years until your student enters college, you can make an educated estimate of how much you will need in the future to pay for this expense, by using one of the 'secret' formulas of financial planning.

It is called the Future Value formula. It is, like the name implies, a formula to calculate the compound interest future value of something. Here's the 'secret' formula:

FV = PV * ( 1 + i )N

PV = present value
FV = future value (maturity value)
i = interest rate in percent per period
N = number of periods

When estimating the future cost of something the i represents the rate you expect that something to go up in real terms. To learn about real rates of return see this previous post.

So lets work through an example. I have a daughter who will enter college in 12 years. The cost of attending a university in my state is currently about $17,000 per year, so in todays dollars I would need $68,000 to pay for her education.

PV = $68,000
FV = future value = ?
i = interest rate in percent per period = 6% (nominal college inflation)-3%(expected general inflation rate) =3%
N = number of periods = 12 years

FV = $68,000 * ( 1 + .03)12

If you are like me you don't have one of those fancy TI calculators you kids use, but that is okay. to solve the ( 1 + .03)12 part you just add 1 and .03 then enter 1.03 times 1.03 into your basic calculator and hit the enter button twelve times. That gives you 1.4685. Now multiply $68,000 by the 1.4685, and presto, you find you will need about $99,860 (lets call it an even $100,000) in inflation adjusted dollars to send little Debbie off to college when the time comes.

Finally, when you are planning for retirement the 'how much will I need?' question is usually answered with a per year income figure. Here you have to estimate what you would need if you retired today. You don't need to adjust this amount for inflation because we will be adjusting investment returns for inflation as we go. So just figure what you would need today (you should make adjustments for children that are grown and gone, and any debts like your mortgage that you expect to be paid off.)

From this income need you should subtract any pension, social security, or annuity income you will receive during retirement. This leaves you with the annual income needs you will have to pay for yourself. For example; I need $50,000 in retirement income. I expect to receive $1,400 a month or $16,800 in social security benefits and a company pension of $12,000 per year. That leaves me with a shortfall of $21,200 per year that will have to come from my investments.

If you have read my post on safe withdrawal rates, you'll remember that the estimated real rate of return on your investments is your maximum withdrawal rate. Let's say my expected real rate of return is 5%. To estimate how much I would have to have in savings and investments to fund the $21,200 per year shortfall in retirement income I would simply divide $21,200 by .05. This tells me I need to have $424,000 in investments to fund the balance of my retirement income needs.