After almost two decades counseling clients on many financial topics, I certainly run into recurring themes. I suppose this is why 88-year old Warren Buffett claims, like wine, he gets better with age!
For example, there is an ongoing lack of understanding, even among Social Security’s own employees, regarding the options that widows and widowers have following the death of their spouse. The result? Thousands of widows and widowers are being shortchanged. I’ve seen it happen, multiple times.
When your spouse passes, you are entitled to receive what’s known as survivor’s benefits from Social Security. This benefit is based on the earnings record of your deceased spouse. You can file to receive reduced survivor’s benefits as early as age 60.
But, there’s another factor to consider in your Social Security filing decision. You are also entitled to receive a Social Security benefit based on your own work history. As a surviving spouse, you get whichever benefit amount is larger.
At first glance, it appears your filing decision comes down to a simple comparison of these two benefits. This oversimplification explains how widows and widowers are missing out on benefits.
Imagine a husband who earned a Social Security benefit of $2,000 per month. After collecting for just a year, he passed away at age 66. His wife was age 60 at the time of his death. She decides to keep working for a while longer. Her own Social Security benefit at her full retirement age of 66 is projected to be $1,800 per month.
If she chooses to file early for survivor’s benefits at age 60, she’d receive 71.5% of her deceased husband’s Social Security former benefit and only get about $1,400 per month. By delaying all the way up to age 66, she’d get the full $2,000 per month her husband once received. Patience appears to be a virtue, once again.
After some complex calculations related to her decision to file a bit early, she’s told she’ll be getting about $1,800 per month. Her highest benefit is the result of being a surviving spouse. Her own benefit just didn’t make the cut as it was reduced down to about $1,500 due to her decision to file early. So, she’ll start getting $1,800 per month for the rest of her life.
However, a wrinkle in the rules allows her, as a surviving spouse, to split her filing into two separate decisions. Widows and widowers get to choose to file for either their own benefit or the survivor’s benefit. Their choice can make a big difference.
As a widow, the splitting of her filing is accomplished through the use of a “restricted application” to receive just her survivor’s benefit. With this restricted application in place, she’ll get her $1,800 per month survivor’s benefit and still watch her own benefit grow and grow over the years. By the time she hits age 70, she’ll officially make the switch and see her Social Security benefit pop up to almost $2,400 per month!
Without the use of this filing strategy, widows and widowers filing for benefits are “deemed” to be simultaneously filing for both their own and their survivor’s benefit. By default, they get the biggest one and forever lose out on literally thousands of dollars over their retirement years. According to the Office of Inspector General of Social Security, the shortchanging of retirees now exceeds $130 million and counting!
To learn more about Social Security, attend our next Money Series presentation on Wednesday, April 10 at 6:30pm in the McGuire Room of the Traverse Area District Library. To register, please visit MoneySeries.org or simply call (231) 668-6894. Front Street Foundation, through its commercial-free Money Series, is a non-profit committed to providing open-access to financial education, for all.
