Facing the death of a spouse is one of the most difficult events a person can go through. Even as you're suffering the grief of losing the person who was closest to you, you also have to keep dealing with the demands of daily life, and financial considerations often become extremely challenging.
Social Security tries to make things easier from a monetary standpoint by providing monthly survivor benefits following the death of a spouse. Yet the way that these survivor benefits supplement other Social Security benefits isn't always easy to understand, and there have been many documented instances of surviving spouses making mistakes with their survivor benefits that cost them thousands of dollars in lost monthly payments. Below, you'll learn more about survivor benefits and how to avoid making costly mistakes in claiming them.
What are survivor benefits?
Survivor benefits are generally available to surviving spouses once they reach age 60. The amount of the survivor benefit is based either on what the deceased spouse was actually receiving in retirement benefits at the time of death, or what the deceased spouse would have been entitled to get from Social Security. It's also affected by when the surviving spouse makes a claim, as there's a reduction for taking survivor benefits prior to reaching full retirement age. For instance, if you take survivor benefits right at 60, then you'll only get 71.5% of what you would have gotten had you waited until full retirement age.
Surviving spouses who are eligible for Social Security retirement benefits based on their own work histories have additional choices. You can always claim both benefits at the same time, and that's often what people end up doing. In that case, you won't get the total of both amounts, but rather you'll receive whichever benefit is larger.
But many people don't realize that you don't have to claim both survivor benefits and your own retirement benefits simultaneously. Unlike the rules for spousal benefits -- for which you typically do have to claim both at the same time -- you can choose to take only your survivor benefit while delaying your own retirement benefit, or vice versa.
That opens up a potentially lucrative strategy:
- Take whichever benefit is smaller at a relatively early age.
- Allow the larger benefit to keep growing, either through full retirement age for the survivor benefit or through age 70 for your retirement benefit.
- Claim the larger benefit at full retirement age or age 70.
The net impact of this strategy will be to get a smaller benefit amount as early as possible to help you get some income from Social Security, while ensuring that you'll receive a larger amount later in retirement.
How costly a mistake can be
Here's an example of how this can actually work. Say that you're 62 and your spouse, who was 66, just passed away. Your spouse had just claimed Social Security at full retirement age and was getting $1,500 per month. Your own retirement benefits would entitle you to a $1,600 per month payout if you waited until your full retirement age of 66 1/2.
You could claim both benefits right now. The retirement benefit would be reduced by 27.5%, giving you $1,160 per month. The survivor benefit would be reduced by 19.25%, yielding $1,211 per month. You'd get the larger of the two, or $1,211 per month, from Social Security.
However, you can use one of two alternatives. If you claim only your retirement benefit now and allow the survivor benefit to keep growing, then you could get $1,160 per month now and then get a full $1,500 per month once you reached full retirement age. Because survivor benefits don't get any additional boost if you claim them after reaching full retirement age, there's no reason to wait longer. You'd take about a $50 monthly hit compared to claiming both, but you'd receive almost $300 extra per month from full retirement age onward.
Claiming the survivor benefit now and waiting for your retirement benefits could give you an even bigger boost. You'd still get the $1,211 per month from Social Security now, seeing no penalty compared with claiming both. Yet at full retirement age, you could get $1,600 per month -- almost $400 more. Wait until age 70, and you could get an even larger $2,048 monthly benefit from delayed retirement credits that are available on your own retirement payments.
Get what you deserve
It's hard to make smart decisions immediately after the death of a spouse. But given what's at stake with Social Security, understanding that there's an opportunity to get a big benefit boost can make a huge difference in ensuring your financial survival throughout the rest of your life.