Survivor planning is an important consideration in relation to maximizing your Social Security benefits. It is worth taking time to understand how Social Security survivor benefits will work for your personal family situation.
Survivor planning while both partners are alive
If you are an unmarried couple, should you consider marriage in relation to the value of survivor benefits? It depends. The decision to marry has many financial elements; access to survivor benefits is just one consideration.
It is important to consider for unmarried couples over age 50 with an income disparity. If the higher earning partner dies first, the lower-earning partner has access to survivor benefits, but only if they were married. However, if the higher earner is expected to live longer (and keep their own benefit rather than switch to survivor benefits upon the death of the lower-earning partner) marriage would not be necessary to preserve the higher benefit. Prior marriages also come into play. If the lower-earning partner was divorced after ten years of marriage, he/she may qualify for divorced-spouse survivor benefits based on their ex-spouse, and may not need survivor benefits from his/her current partner.
Planning for married couples centers on when the higher-earning spouse should claim Social Security benefits. When the higher-earning spouse dies, his/her benefit will transfer over to the surviving spouse as a survivor benefit. Maximizing Social Security means maximizing lifetime income over the life expectancies of both spouses.
Anyone who has divorced after ten years of marriage may be eligible for survivor benefits based on their ex-spouse. If the divorced person is still single, or if they remarried after age 60, they may be eligible for divorced-spouse survivor benefits upon the death of their ex-spouse. This requires comparing the divorced survivor benefit to their own benefit and switching to the survivor benefit if it is higher.
Survivor planning following death of a spouse
Once a spouse has died, the surviving spouse should determine when to claim their survivor benefit. The most typical situation is when a couple grows old together and one spouse dies. At that point, the surviving spouse will call Social Security Administration and make an appointment to apply for their survivor benefit. If their own benefit is higher, they will keep their own benefit. If not, they will switch to the higher survivor benefit. This is usually equal to the decedent’s benefit at the time of his/her death.
In the case of younger widows or widowers, they become eligible for survivor benefits at age 60 based on their deceased spouse’s record, as long as they were married for at least nine months, and the spouse passed away during the marriage. If the spouse died after they divorced, the marriage requirement is ten years. The widow/widower must be unmarried to collect the survivor benefit at age 60, even there was an intervening marriage that has ended. One may also file for survivor benefits after age 60 if the new marriage took place after the age of 60.
If the widow/widower is between ages 60 and 70, there are two options:
· Start their survivor benefit as early as age 60, then switch to their own retirement benefit as late as age 70 (if their own benefit is higher).
· Start their own retirement benefit as early as age 62, then switch to the full survivor benefit at their Full Retirement Age (FRA), if higher.
The choice of strategy depends on which of the two benefits is higher.
One final note: The Social Security earnings test applies to survivor benefits, and survivor benefits are taxed the same as retirement benefits.
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Janet Rhodes Friedman, CFP®, CDFA®, MBA
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. Financial Planning Solutions, LLC (“Financial Planning Solutions”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Financial Planning Solutions and its representatives are properly licensed or exempt from licensure. Financial Planning Solutions and its advisors do not provide legal, accounting, or tax advice. Consult your attorney or tax professional. Representatives have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration.