While Social Security is a significant source of income for many retirees, navigating the intricacies of the program can feel overwhelming due to complex rules and practices. It’s crucial for financial advisors to thoroughly understand the nuances within the Social Security program to help retirees correctly navigate and determine the optimal time to claim.
The widow(er) benefit is one of the most common elements that advisors need to consider, but numerous stipulations can make it difficult to determine the impact. Here’s a closer look at the widow(er) benefit.
How Are Social Security Widow(er) Benefits Calculated?
Simply put, the widow(er) benefit is calculated based on both when the deceased claimed Social Security and when the survivor claims.
The benefit is limited to the higher of 82.5% of the deceased’s full retirement age (FRA) benefit or the amount the deceased was actually receiving at the time of their death. If the deceased was born between 1943 and 1954 and claimed benefits at age 62, and the surviving spouse reached full retirement age by the time of the deceased’s death, the surviving spouse will actually receive more than the deceased was receiving (82.5% of the deceased’s FRA benefit rather than 75%).
As FRA increases from 66 to 67, the effect can be even more significant. For example, if the deceased were born in 1958 and died in 2020 immediately after claiming benefits, they would be receiving 71.67% of their Primary Insurance Amount. The survivor would receive 82.5% of the deceased’s FRA benefit rather than what the deceased was receiving.
As a result, in cases where the older spouse is a significantly lower wage earner and is in poor health, claiming retirement benefits as early as possible often makes sense.
On the other hand, in cases where the survivor is younger than the deceased, and the deceased was the higher wage earner and had elected early benefits, you’ll need to pay special attention to claiming decisions for the survivor, as delaying the widow(er) benefit all the way to the widow(er)’s FRA may result in months of forfeited checks without a corresponding increase in benefits.
Social Security Claiming and Widow Benefits: A Case Study
John was born Jan. 2, 1956, and had an FRA benefit of $2,500. He claimed benefits at 62 and was receiving $1,833 when he died at age 64 in January 2020. The “widow limit” is thus $2,062 (82.5% of $2,500).
Jane was born Jan. 2, 1958, and has an FRA benefit of $1,500. If she claims benefits at age 62, she will get $1,075 per month. If she claims at age 70, she will get $1,900.
Jane needs to decide what to do. She has a few options. She could take her own retirement benefit at age 62, intending to later switch to her widow’s benefit. She would receive $1,075 until she switches. Without formal advice, odds are better than not that she would switch to her widow benefit at age 65 when she files for Medicare as Social Security personnel should catch that she would be eligible for a benefit of $2,062 at that time and switch her over to widow benefits, but that option would cost her almost $30,000 in forfeited benefits.