Ask an advisor: I have terminal cancer. What does that mean for my Social Security?

October 27, 2022 3:36 PM

A cancer diagnosis can make it hard to plan for the future.

Welcome back to "Ask an Advisor," the advice column where financial pros answer pressing investment questions. The topics can range from retirement to taxes to wealth management — or even advice on advising — and the questions are from real people.

This week's entry addresses an upsetting but important topic: how to plan for retirement when you have a terminal illness. A New York woman has recently retired and wants to collect Social Security at the right time, but a cancer diagnosis complicates the question.

Social Security is designed to reward those who claim the benefit as late as possible. For anyone born after 1960, the full retirement age is 67. The woman who wrote to us — who was born in 1961 — could retire early at 62, but her benefits would be reduced by 30%. In her case, that would mean losing $661 per month, or $7,932 per year. (The survivor benefits for her husband, in the event that she passes away, would be the same at both ages.)

Added to all this math is an unknowable number: how many years she has left. Here's what she wrote:

Dear advisor,

I am a 60-year-old former pre-K director. My husband and I are both recently retired, and we divide our time between New York City and Stamford, New York. I am also living with Stage 4 cancer. Will this affect my Social Security? Because my illness is terminal, I want to start claiming early at 62. On the other hand, I know this will reduce my benefits. And fortunately, though my particular cancer — medullary thyroid — is incurable, it is very slow-growing. With treatment (which is improving), I could live for many more years — maybe even decades. When should I start claiming? And do I qualify for a Compassionate Allowance, or any other special program within Social Security?

— Surviving in Stamford

Here are the answers we heard from advisors:

Lots to consider

Noah Damsky, CFA, principal of

Marina Wealth Advisors

:

"Sorry to hear about this person's situation. Fortunately, there may be a path to draw on Compassionate Allowances. A qualifying factor will be her ability to work and engage in substantial gainful employment (SGA). While the challenges from the illness must be significant, it is unclear whether the illness is preventing SGA or she's chosen not to work for other reasons. If it's the latter, she would be disqualified.

Generally, it can be wise to take benefits at 62 when there is a terminal condition, although this should be balanced with them mentioning that it is 'very slow-growing,' so perhaps waiting will be prudent if they can reasonably expect to live into their 70s."

Don’t forget Social Security Disability

Erik Nero, CFPO, CCFC, president of

First Step Wealth Planning

:

"Social Security has a list of different maladies that would make her eligible for her to receive Social Security Disability, and she can do that right now at age 60. If she's not able to work, it may be better to collect the Disability first, and then at age 62 that will switch over to Social Security Retirement. It'll be the same amount; it'll just come from a different source.

She also asked whether it makes sense to delay the benefit. Given the fact that she does have a terminal illness, it probably is best for her to start collecting on this sooner rather than later, because longevity unfortunately does not seem to be on her side. So collecting Social Security Disability may be a nice income benefit to help her through this type of challenge that she has in her life."

Damn the torpedoes!

Leibel Sternbach, EA, NSSA, ChFC, APMA, founder of

Yields for You

:

"This question hits particularly home for me. My dad died at age 63 from stage 4 prostate cancer. He was diagnosed at 61, and he did eventually file for Social Security at 62. Here's my advice:

#1 - File for disability and tap into any accelerated death benefits you have. Being diagnosed with a terminal illness is a keyword and will unlock benefits, including Supplemental Security Income or TERI (Terminal Illness), which will turn into Social Security Retirement income at 62.

Filing for them does NOT mean giving up. It means being financially responsible and taking advantage of every resource you have. You and your loved ones will need them.

#2 - Up to 175% of your Social Security benefits may be paid to family members. This includes minor children. I have siblings who started getting Social Security checks when my dad filed. That additional income can significantly offset the benefit of deferral.

#3 - Ultimately, the decision comes down to what will help you and your surviving spouse's ultimate finances.

Remember, early Social Security benefits are "use it or lose it," and being happy is one of the best forms of medicine. So if having that extra cash will help you spend money in ways that will make you happier, ultimately, it can help you live longer. My dad waited too long and regretted it. He didn't start living until nearly the end when he said "damn the torpedoes," and started racking up credit card debt and buying the things that made him happy. (We didn't discover how he paid for it until after he died. On the plus side, dying penniless means that there is no estate for creditors to come after.)