Losing a spouse is undoubtedly one of life’s greatest challenges. Unfortunately, the difficulty of this traumatic loss is compounded by the complex financial decision-making that comes along with it. From settling the spouse’s estate to analyzing cash flow and planning for the future, there’s no shortage of important choices that will need to be made; maximizing social security benefits as a newly single individual is no exception.
Social Security is one source of income that can be a lifeline for widows or widowers, but the different claiming strategies can make the process of deciding when and how to claim quite difficult. You may already be familiar that a widow entering retirement can choose to claim Social Security benefits based on her own work record or that of her deceased spouse. These benefits are what is known as the worker benefit and the survivor benefit[i], respectively. But what you may not be aware of is that there are strategies you may be able to use to help maximize the income by using both.
How? It’s all in the proper timing of the claims.
At first glance, the most logical option may seem to be that the widow or widower automatically claims the higher of the two benefit incomes, but there is another way to approach it. We believe integrating the two benefits can provide a higher lifetime income for the surviving spouse as we demonstrate below.
The Worker Benefit
As an active member of the workforce, your worker benefit becomes available one month after turning 62[i]. However, for those who take their worker benefit without reaching the Full Retirement Age (FRA), the monthly benefit is permanently reduced.
So, it effectively boils down to a choice: either you take your worker benefit earlier and receive less, or you wait and get more.
However, a survivor’s benefit is different: in this case, a person may choose to receive their benefits as early as 60. A survivor benefit consists of their deceased spouse’s Primary Insurance Amount, based on the contributions to the Social Security system made by the latter during their lifetime. Despite the difference in initial age eligibility, the worker and survivor benefit are similar in one way: if the amount is claimed prior to FRA, the amount is again permanently reduced.[ii]
Understanding Your Benefit Options[iii]
As a widow/er filing for Social Security benefits, then, there are effectively three options for you to consider:
1. Claim the benefit with the greatest monthly value during the initial filing.
In this case, a widow/er who has not remarried by 60 and who has worked for a minimum of 40 quarters during their lifetime can choose between a worker and survivor benefit when claiming Social Security income. The simplest solution here is just to initiate the most profitable benefit right off the bat.
2. Claim a worker benefit at 62, then switch to the survivor benefit once you reach the FRA.
If a widow/er has a worker benefit less than their deceased spouse, they can use this strategy to claim the highest survivor benefit possible while still reaping the rewards of a worker benefit.
3. Claim survivor benefit at 60, then switch to a worker benefit at 70.
The widow/er can claim a survivor benefit at 60 before swapping over to a worker benefit – either theirs or that of their deceased spouse. These ages are also approximate. The survivor benefit can be claimed later than 60, and the worker benefit earlier than 70. However, by starting the survivor benefit at 60, the individual can leverage their Social Security income as soon as possible, while delaying the worker benefit to 70 yields the maximum Delayed Retirement Credits and Cost-of-Living Adjustments on their claim.
It is also worth noting that if you remarry after 60, your survivor benefits as a widow/er will not be affected. If you do remarry, you will be able to choose between your deceased spouse’s survivor benefit or your current partner’s spousal benefits. These same rules apply for a divorced person with a deceased ex-spouse, so long as the marriage lasted ten years at minimum, and the person is either unmarried or remarried after 60.
Ultimately, there is no ‘correct’ choice. Any of these three strategies can be leveraged to achieve a desirable result—what’s right for you simply depends on your personal factors and circumstances.
We understand that Social Security may not comprise the majority of your retirement income but believe that you’ll want to file your claim in such a way that helps maximize the benefit amount. After all, you’ve been paying into the program your entire working life, we feel you should choose a claiming strategy that benefits you most. To learn more about your social security options or simply to connect with a financial professional who can help you prepare for retirement, schedule a call with URS Advisory today. We would be honored to answer your questions.
[i] https://www.ssa.gov/benefits/survivors/ifyou.html 25 May 2021
[ii] https://www.ssa.gov/pubs/EN-05-10024.pdf 25 May 2021
[iii] https://www.ssa.gov/benefits/survivors/ 10 June 2021
[iv] https://www.ssa.gov/benefits/forms/ 10 June 2021