Cutting through the confusion around Social Security benefits
Social Security spousal benefits and survivor benefits appear very similar on the surface.
Both programs provide benefits to an individual based solely on their spouse’s work history. But scratch a little deeper, and one finds a tangle of regulations and features that are just different enough to cause headaches for advisers.
The name of the Social Security program that provides the benefits, Old Age, Survivors and Disability Insurance, hints that the retirement program provides different benefits for spouses and survivors. Spousal benefits are based on a living or ex-spouse’s work history, while survivor benefits are based on a dead or ex-spouse’s work history.
The following compares the programs.
The biggest difference between the programs is the benefit’s actual amount.
Maximum survivor benefits are 100% of the deceased worker’s last Social Security benefit, while maximum spousal benefits are 50% of the worker’s full retirement age benefit. The survivor benefits can be more than as twice as much as spousal benefits.
There is another big difference between the programs.
Survivor benefit calculations include any delayed retirement credits that the worker may have accrued by waiting until as late as 70 before filing for benefits. Spousal benefits are based on the worker’s FRA benefit and aren’t enhanced by delayed retirement credits.
This feature cuts both ways. If the deceased worker had applied for early benefits, the survivor benefit would be based on the worker’s reduced benefit, not the FRA benefit.
The graphic shows the dramatic difference between spousal and survivor benefits. An individual’s survivor benefits will fall somewhere between the minimum and maximum lines, depending partially on if, or how late, the worker had delayed filing for benefits.
EARLY FILING BY SPOUSE OR SURVIVOR
The age of the spouse or survivor when they file for benefits is also a big factor.
Filing for either benefit before FRA reduces the benefit, though not in the same way. This is because the earliest allowable filing age is 60 for survivors and 62 for spouses.
At 60, a widow could claim a survivor benefit equal to 71.5% of the deceased worker’s benefit stepping up to 100% if she filed at her FRA.
Sixty-two is the earliest that a spouse can claim a spousal benefit. An individual would only get 35% of the worker’s benefit stepping up to 50% if he or she filed at FRA.
The effects of early filing can be seen on the left portion of the graphic between 60 and 66.
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OTHER VARIATIONS BETWEEN THE PROGRAMS
Full retirement age: The designation of FRA also differs. For spousal benefits, FRA is 66 for those born between 1943 and 1954. For survivor benefits, FRA is 66 for people born between 1945 and 1956. For those born in 1944 or 1955, each benefit will have a different FRA.
Length of marriage: The minimum length of marriage required to qualify is 12 months for spousal benefits and nine months for survivor benefits. There are different exceptions to each of these as well.
Effect of remarriage: If one is divorced and collecting benefits on the work record of the ex-spouse, remarrying may affect benefits differently. Remarriage will completely nullify any spousal benefits based on the ex-spouse’s work record. But if the ex-spouse has died and the survivor remarries after 60, he or she can keep the survivor benefit. This sets up a situation where an individual who remarried after his or her 60th birthday may choose taking a survivor benefit based on the income of the ex-spouse; taking a retirement benefit based on his or her own work record; or getting a spousal benefit based on the current spouse’s work record.
The accompanying table summarizes most of these features for a more convenient reference.
TWO PLANNING OPPORTUNITIES
There might be an important planning opportunity for a widowed client in his or her late 50s who is planning to remarry. For instance, if a woman collecting survivor benefits on her deceased husband is 59 and planning to remarry, she might want to delay the ceremony until her 60th birthday. This would allow her to keep receiving the survivor benefit from her deceased husband after her wedding.
The recent changes in law, which rescinded the file-and-suspend strategy and phased out restricted filing, only apply to the old-age and spousal benefits programs, not the survivor program. It may be possible to leverage the independent nature of these two programs.
Delaying filing or claiming early for one program doesn’t affect the other. An individual could apply for reduced survivor benefits before full retirement age.
This early survivor filing wouldn’t affect an application for an individual’s own old-age retirement benefits. The individual would still be eligible to collect the full benefit at 66 or even accrue delayed retirement credits by waiting until 70.
Paul Norr is a CFP with Bucks County Financial Planning Group in Thousand Oaks, Calif.
This story is part of a 30-30 series on tools and strategies for retirement. It was originally published on June 22.