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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.

Why?

Jane has 76 months between her initial widow benefit eligibility at age 60 and her widow FRA of 66 and 4 months. Notice her widow FRA is 4 months earlier than her FRA for her own retirement benefit of 66 and 8 months. Widow benefits operate on a straight-line reduction of 28.5% divided by the number of months between age 60 and widow FRA.

In Jane’s case, each month of delaying the widow benefit results in a .375% increase in the widow benefit. The maximum widow benefit Jane can receive is 82.5%. We need to figure out how many months of delay it would take for her to get from 71.5% to 82.5%. Since the difference is 11%, we can divide that by .375%, and we get 29.33 months.

Due to the widow limit, her widow benefit is only growing for the first 29 months. After 29 months of delay (beginning at age 60), the widow benefit is capped at $2,062. By not knowing the rules, Jane would forfeit 31 months of widow benefits, or $30,597.

On the other hand, let’s say that she instead filed for widow benefits at age 62. She would receive $2,012 per month. She would never switch to her own retirement benefit because even at age 70, her retirement benefit would only have grown to $1,900 per month.

The monthly benefit of $2,012 is not a huge difference from what she would have received had she delayed five more months, but the breakeven on that decision is only seven years and 10 months. In other words, if she lives any longer than age 70, she would have been better off by $600 per year plus cost of living adjustments for the rest of her life. Given the average life expectancy for women, that’s still a several thousand-dollar mistake.

Then again, Social Security personnel might not catch it, as widow benefits are one of the most regularly missed considerations.

Either way, it should be evident that widow(er)s who have options for coordinating their own retirement benefit with a widow(er) benefit should not go it alone. Advisors who are knowledgeable and equipped with appropriate tools can add significant value in these cases.

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Joe Elsasser, CFP, CovisumJoe Elsasser developed his Social Security Timing software in 2010 because, as a practicing financial advisor, he couldn’t find a Social Security tool that would help his clients make the best decision about when to elect their benefits. Joe later founded Covisum, a financial tech company focused on creating a shared vision throughout the financial planning process.

In 2016, Covisum introduced Tax Clarity, which helps financial advisors show their clients the hidden effective marginal income tax rates that can significantly affect cash flow in retirement. In early 2017, Covisum acquired SmartRisk, software that allows advisors to model “what-if” scenarios with account positions and align a client’s risk tolerance with their portfolio risk. In January 2019, Covisum launched Income InSight, an income planning tool.

Covisum powers some of the nation’s largest financial planning institutions and serves more than 20,000 financial advisors.