I received a poignant e-mail from an adviser in Iowa this morning who had questions about when and how he should claim Social Security benefits after his wife, who has terminal cancer, passes away.
Bill is 62. His wife, who is 64, has been receiving Social Security disability benefits for three years. Although she has already outlived all of her doctors' life expectancy projections, there is no cure for colon cancer. “Each day with her is a blessing and we are having fun running down her bucket list,” he wrote.
Bill wants to know whether he can claim a “spousal benefit” after his wife dies. “And if I do claim benefits early, does it diminish what I can take at age 66?” he asked.
When one spouse dies, claiming a spousal benefit is no longer an option. But there would be a survivor benefit which is worth twice as much as a spousal benefit.
Widows or widowers benefits can claim survivor benefits as early as age 60, but they are reduced by a fraction of a percent for each month benefits are claimed before full retirement age. If a person receives survivor benefits, and will qualify for a retirement benefit that's more than their survivors benefit, he or she can switch to their own retirement benefit as early as age 62 or as late as age 70.
There's a major different between the two benefits: Retirement benefits accrue delayed retirement credits worth 8% per year between normal retirement age and age 70. Survivor benefits do not.
While a spousal benefit is worth up to half of the worker's benefit amount if claimed at normal retirement age a survivor benefit is worth 100% of what the worker was receiving, or was entitled to receive, at the time of his or her death. In either case, benefits are reduced if you claim them before your normal retirement age.
Plus, any type of Social Security benefits—whether retirement, spousal or survivor—claimed before normal retirement age are also subject to the earnings cap restrictions. In 2013, you lose $1 in benefits for every $2 you earn over $15,120. Essentially, that means if you earn about $45,000 or more this year, you would lose all of your Social Security benefits so it would be better to wait at least until your normal retirement age to claim benefits.
After his wife's death, Bill would be entitled to a monthly survivor benefit equal to what she received in disability benefits if he was 66 or older at the time he collected them. It he claimed survivor benefits before then, they would be reduced.
Bill may want to claim survivor benefits as soon as he is eligible. He is semi-retired so he says his earnings won't be affected by the earnings cap. Income from his private-sector pension and investment income won't affect his Social Security benefits either.
He can then maximize his own retirement benefits by postponing collecting them until he turns 70. They way they will accrue delayed retirement credits worth 8% per year for every year between his normal retirement age of 66 and 70. At that point, his benefit would be worth 32% more than at his full retirement age would create a bigger base benefit for future cost-of-living adjustments.
When deciding which benefit to claim first, you should compare the available survivor benefit, which will not increase, to the maximum retirement benefit, which could include delayed retirement credits.