Nobody wants to experience it, but unfortunately, some of us will: the loss of a spouse. While you may be quite adept at handling financial complexities as a CPA, deciphering the nuances of Social Security survivor’s benefits during such a time can be challenging. However, your choices at this difficult moment can have financial consequences that can last for years, so it’s essential to make the right decision.
Quantifying the Benefits
The survivor’s benefits you can claim hinge mainly on the age at which you apply. Applying at your Full Retirement Age (FRA) or later entitles you to receive 100% of your late spouse’s benefits. Your FRA is the age at which you qualify for full retirement benefits based on your own work history – not your spouse’s.
If you’d like to receive benefits earlier rather than later, it’s possible to apply for them as early as age 60, but doing so will lead to a reduction in benefits. The sooner you apply, the more significant the decrease, meaning the fewer benefits you’ll get. Alternatively, you can wait to claim them, but unlike usual Social Security payments, survivor’s benefits don’t increase if you defer your application. Therefore, if you’re waiting to claim these benefits, there’s no advantage in waiting past your Full Retirement Age.
You can receive benefits even earlier at age 50 if you have a disability and it started before or within 7 years of your spouse’s death. Finally, benefits can be claimed at any age if you are caring for a child under 16 as long as they’re a biological child or adopted child of your spouse. However, they’ll only last until they turn 16, and you’ll lose the benefits if you remarry.
Qualifying for Survivor Benefits
Receiving survivor’s benefits involves meeting specific prerequisites. Firstly, your spouse must have worked for the minimum amount of time to receive benefits, which depends on the age of death. Generally speaking, the younger the age of death, the less time of work is needed for survivors to be able to claim benefits.
If your spouse worked long enough, then you also must have been married for at least nine months to qualify. If you remarry before reaching the age of 60, you will lose your benefits.
Now, just because you qualify, it doesn’t mean you’ll receive your benefits. Therefore, it’s important to inform the Social Security Administration as soon as possible and apply for your benefits.
Benefits for a Surviving Divorced Spouse
Should you find yourself a surviving divorced spouse, you might still be eligible for benefits similar to those of a direct surviving spouse, provided your marriage spanned at least a decade. And even choosing to remarry after age 60 (or after age 50 if you’re disabled) won’t compromise your benefits.
Optimizing Your Benefit
If your spouse has passed away and you are 60 or over, you have a couple of strategies to choose from.
Strategy 1: Prioritize Survivor Benefits, Then Transition to Retirement Benefits
One way for surviving spouses to potentially optimize their overall retirement funding is to initially claim survivor benefits and later transition to their personal retirement benefits. This strategy allows individuals to begin drawing survivor benefits as early as age 60 (or age 50 if disabled).
But remember, claiming benefits before reaching the full retirement age (67 for those born after 1959) results in receiving just a portion of your potential maximum survivor benefit. In contrast, waiting until full retirement age ensures you receive the full 100% of the benefit.
The trade-off is that your personal retirement benefit can continue to grow. Additionally, once you hit the full retirement age, your retirement benefit will start accruing a significant 8% annual delayed retirement credit.
Strategy 2: Begin with Retirement Benefits, Then Migrate to Survivor Benefits
An alternative approach involves claiming your retirement benefits as soon as you turn 62. However, this early claim results in a 30% reduction in your monthly benefit.
Then, upon reaching age 67, you can transition to the full spousal benefit.
It’s important to note that delaying your survivor benefits claim past the full retirement age won’t yield any additional delayed retirement credits. However, if your late spouse did delay their Social Security claim past their full retirement age, any accumulated delayed retirement credits on their end would enhance your subsequent survivor benefits.
It’s important to note that delaying your survivor benefits claim past the full retirement age won’t yield any additional delayed retirement credits. However, if your late spouse did delay their Social Security claim past their full retirement age, any accumulated delayed retirement credits on their end would enhance your subsequent survivor benefits.
Determining the Optimal Strategy for Your Situation
You may want to start with your own benefits first if your spouse qualified for (or received) a higher benefit than you can on your own, and then switch to their higher benefits once you reach full retirement age. However, this strategy only works if you can afford to wait until age 62, the minimum age to start taking Social Security benefits. If you need money sooner, you may want to take advantage of the earlier survivor benefit age of 60.
Conversely, if your Social Security entitlements are on par with or are higher than your spouse’s, it might be more beneficial to start with the survivor benefits and let your own personal benefit grow. If your spouse claimed benefits early, then it is highly likely that simply claiming their benefit first is the optimal route, as it probably wouldn’t make sense to claim your own first and then claim their, presumably smaller, benefit later.
Final Thoughts
The loss of a loved one is immeasurably difficult, and the added pressure of making financial decisions can be overwhelming. While there isn’t a one-size-fits-all approach to Social Security benefits, seeking guidance can help ease the burden. For compassionate and informed guidance on navigating the intricacies of Social Security, especially during such trying times, consider reaching out to a specialist in social security planning.
Should you require assistance navigating Social Security survivor’s benefits, contact us for a discussion by clicking the button below.
