After one spouse of a senior couple dies, the survivor will collect one Social Security check per month. The larger of the two checks will keep coming, but there will be a decrease in income. Even so, the survivor may have a higher effective tax rate, as a single filer, so paying ongoing expenses can be challenging.
Cheryl Holland, president of Abacus Planning Group in Columbia, S.C, mentions retired clients whose monthly income need is $10,000. "We project a monthly income need of $7,500 for a surviving spouse," she says. Most of the couple's assets will pass to the husband's children from a prior marriage, perhaps leaving the wife with an income gap, if she's the survivor.
"We recommended that the husband delay Social Security until age 70," says Holland. "Then the surviving spouse's benefits will be higher than would be the case with an earlier claiming date. That cash flow is projected at over $40,000 a year, plus any inflation adjustments."
In addition, Holland's firm advised the wife to take a single life rather than the typical joint with right of survivorship pension. "A joint pension would have decreased her monthly income," says Holland. With a single life pension, the wife receives over $25,000 a year for as long as she lives.
"The wife has started to take her pension, as well as Social Security," Holland says. This income helps the couple wait for the husband to start receiving his maximum Social Security benefit at age 70. If the wife is the survivor, she'll continue to receive her pension, the deceased spouse's plump Social Security payout, and income from a trust that eventually will pass to the husband's children.
John Piershale, wealth advisor at an eponymous planning firm in Crystal Lake, Ill., concurs that having one spouse delay Social Security until age 70 may ultimately help the survivor. "We had one situation," he says, "where we encouraged the husband to start Social Security at age 70 instead of 62." The husband died after claiming at age 70.
"His widow's Social Security survivor's benefit was $3,168 a month," says Piershale. "If the husband had claimed at age 62, her survivor's benefit would have been only $1,980 a month. Because the husband waited, the widow benefitted financially."
Piershale cautions that widows and widowers should proceed carefully when it comes to Social Security. "It might be better to take one's own benefit, then switch to the survivor benefit," he says. "Conversely, it may pay to take a survivor benefit as soon as age 60 (for widows and widowers) and switch to one's own benefit later. Or still another choice might be best. The decision depends on when the deceased spouse originally claimed the benefit, when the widow or widower claims a survivor benefit, and the need for income."
With multiple choices, widows and widowers likely will benefit from working with a knowledgeable advisor.
Donald Jay Korn is a Financial Planning contributing writer in New York. He also writes regularly for On Wall Street.
This story is part of a 30-day series on Social Security and retirement income strategies.