Don’t Forget Social Security Survivor’s Benefit!

Don’t Forget Social Security Survivor’s Benefit!

I’ve written often about the value of delaying Social Security (SS) payments until age 70.  By waiting until you reach that age, you accumulate what the SSA calls delayed credits, and are effectively purchasing (using the payments you’ve given up) an inflation-adjusted immediate annuity paying 8%.  You won’t find a better annuity anywhere on the planet in today’s low-interest environment.  And you even have the capability of filing & suspending, which delays your benefits but allows you to undo that delay should your life expectancy or other circumstances change (see https://www.cognizantwealth.com/2014/09/18/delay-social-security-an-easy-way-to-decide/).  Still not convinced?  Well, if you are a married couple, another valuable SS feature is survivor’s insurance.  Barring an accident that takes the lives of both of you simultaneously, one of you is almost certainly going to survive the other.  Survivor’s insurance adds further support to the argument for delaying benefits in order to maximize overall returns.

In effect, if your spouse dies while collecting SS benefits, you are entitled to his/her actual current benefit when he/she dies, assuming your own SS benefit is not higher.  The longer your spouse waits before taking his/her benefits, the higher the benefit you’ll get.  There are three factors that will affect how much you will get.  They are the age at which your spouse dies, the age at which he/she originally filed for his/her SS benefits, and the age at which you begin taking the survivor’s benefit.

Here are some examples to illustrate how it works.  First, some assumptions for simplification:

  • John and Mary are both Baby Boomers, which means they will each reach their full retirement age (FRA) whey they are age 66. That’s the age at which they are each entitled to their full SS benefit.
  • John is four years older than Mary.
  • John’s FRA benefit is $2000 per month.

In the first example, suppose John filed early (at age 62), when Mary was age 58, and died two years later.  Mary starts her survivor benefit at age 60 (the earliest age possible except in case of disability or if you’re caring for minor children). In this case Mary’s survivor’s benefit would have been 71.5% (because she filed early) of 75% (because John filed early) of John’s FRA benefit.  However, the SSA provides an additional guarantee that a survivor’s benefit will never be less than 82.5% of his/her spouse’s benefit.  Therefore in this case Mary’s survivor benefit would be 71.5% of 82.5% (the minimum guaranteed benefit), or $1180 per month.

If instead Mary had waited to collect her survivor’s benefit beginning at age 66, she would have gotten the unreduced 82.5% of John’s FRA benefit, or $1650 per month.  And if John had not filed for his SS benefit early, before dying, at age 66 Mary would have gotten the full $2000 per month.

It gets even better if John manages to hang on until age 70.  Suppose he died that year without having filed or having filed and suspended at his age 66.  In that case Mary – who has now reached her own FRA at age 66 – would be entitled to 132% of John’s benefit, or $2640 per month.  And of course all these monthly payments will grow with inflation, so if both John and Mary had decided to wait before triggering their SS benefits, Mary will be the beneficiary of some significantly fatter checks during her later years.

You can also get survivor benefits from an ex-spouse if you’d been married to him/her for at least ten years and you are currently unmarried or did not marry your current spouse until after age 60.  And it doesn’t matter how many other spouses your ex-spouse had!

There are also numerous strategies you can utilize to maximize your combined SS benefits when both spouses have earned benefits, as I have written before.  In the end, though, assuming you don’t need the money sooner, it almost always pays to wait.

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