Next, I'd like to introduce you to three women who were married 9 months or more, but whose husbands have passed away. To be eligible for survivor benefits, you have to be at least 60 (50 if disabled) and not remarried before age 60 (50 if disabled). If you were married 10 years or more and then divorced before your ex passed away, you could be eligible for divorced survivor benefits.
This is a comparison of three women, Arlene, Donna and Sue. They all turned 63 in 2017, and were married to their husbands for quite some time before their husbands passed away. All these women are expected to live a long life, to age 95. For this illustration, we are not including any Cost of Living Adjustments (COLA) which are the yearly raises received by Social Security recipients. Historically these have ranged from 0% - 14%. Remember, adding COLAs will magnify these numbers, making them bigger.
The main difference between each woman’s scenario is their Primary Insurance Amount (PIA). This is the estimated benefit that they would expect to receive at their Full Retirement Age (FRA). It is based on the highest 35 years of earnings as applied to a formula. Each deceased husband has the same PIA of $2,600.
Some reminders that are specific to survivor benefits are that full retirement age for survivors can be different than for other retirees, around 4 months earlier. If a survivor intends to work, they will still be subject to the earnings test. And although the Bipartisan Budget Act of 2015 made several changes to Social Security claiming rules, it did not change that a surviving spouse who is also entitled to her own retirement benefit can still choose to claim one type of benefit first and switch to the other later if it would result in a bigger benefit. That's what we'll illustrate here.
Arlene was married to Roy for 41 years and was a wonderful wife and mother to her kids. She only worked a few years before they started their family. Just a year ago, Roy had a heart attack and passed away.
Arlene is wondering if she should start Social Security benefits. Because she is 63, she can start her own benefit or her survivor benefit. Her PIA is $500/mth and her husband's PIA is $2,600/mth. If she started either benefit early at 63, benefits would be permanently reduced to $400/mth or $2,228/mth.
To maximize her benefit, if she could live on other sources of money for 3 years, she could start her own reduced benefit right away, getting $400/mth and $4,800/yr. That's not really enough to live on, thus the need for other income. She could even work and earn up to the earnings test limit of $17,040 (2018) without any reduction in that benefit. Then at her full retirement age of 66, she could switch to her survivor benefit which is the full, unreduced PIA of $2,600/mth or $31,200/yr. This would give her a lifetime total of $950,400 in benefits.
If she didn't think she was going to live a long life, or couldn't wait for 3 years because she needed the higher income now, she could start her permanently reduced survivor benefit right away at $2,228/mth and $26,736/yr. That lifetime total, to age 95, would be $882,288.
By utilizing the claiming strategy of starting her own now and switching to her survivor benefit later, she would have $4,464 more a year and $68,112 more over her lifetime. Cost of living increases would magnify these dollars even more. Could you use an extra $4,464/yr?
Donna's story is similar. She and her husband, Don were married for 25 years when Don passed away.
Donna worked a little more during her career and her full retirement amount (PIA) is $1,200.
She could do something very similar to Arlene. She could start her survivor benefit right away which would be permanently reduced to $2,228/mth or $26,736/yr. Or if she wanted to maximize both her monthly and lifetime benefit, she could start her own permanently reduced benefit right away, which would be $960/mth and then switch to her survivor benefit of $2,600/mth at her full retirement age of 66.
By doing that, her monthly income is higher by $372, annual income by $4,464 and lifetime by $88,272.
Sue was a single, career-oriented woman until she met the love of her life at 48. Michael swept her off her feet and they were happily married until his death just a couple years ago.
While it was unexpected, because Sue had always worked, she had plenty of savings and her Social Security benefit was near the maximum because of her high earnings history.
Again, because she is already 63, she could start her survivor benefit right away. But if she did that she would completely miss out on using her own, high benefit. One thing about Sue is that she intends to keep working, at least for a few more years.
If she wanted to stop work and start survivor benefits right away, her lifetime benefit would total $882,288. To maximize her lifetime benefits she would want to do one or two things. Continue to work and not begin any benefits until she either stopped working or became full retirement age to avoid giving back benefits due to the earnings test. In either case, at age 70 she would switch to her own benefit, which has now earned 8% annual delayed credits, growing from $2,600 to $3,432/mth and $41,184/yr.
By continuing to work until 66, she has job earnings, she'll get her survivor benefit for 4 years, then switch to her own benefit at 70, her lifetime total adding up to $1,195,584. Now that is significant.