Social Security options worth investigating

My e-mail traffic has been a bit heavier than usual, thanks to a recent rerun of a Social Security special I taped with Consuelo Mack for her “WealthTrack” program that originally aired on Public Broadcasting Service stations last year.

The many questions from “WealthTrack” viewers offer some insights into what existing or prospective clients may be asking about the best way to maximize Social Security benefits. It seems that financial advisers should bone up on claiming strategies for married couples, particularly if one or both spouses were married before.

Janis, a viewer from Venice, Fla., is 64 and began collecting her Social Security benefits early at 62. Her benefits total about $8,000 per year.

Janis’ husband, an 80-year-old cancer survivor, collects about $16,000 a year in benefits.

She was previously married to a younger man decades ago. They were married for 13 years.

A QUALIFIED YES

Looking ahead, Janis wonders whether, when her current husband dies, she will be able to collect benefits on her ex-husband’s earnings record. His benefits, once he turns 62 in a few years, are likely to be higher than her current husband’s benefits.

The answer is a qualified yes.

“You cannot collect benefits on your ex-husband’s earnings record while your current husband is still alive,” I wrote to Janis.

“But if he dies, you can collect 100% of his survivor benefit if you are at least 66 years old at the time, and less if you are younger. Or you can collect spousal benefits on your ex-husband’s earning record if that would result in a larger benefit,” I wrote.

Although ex-spouses are entitled to the same spousal benefits as married spouses under certain circumstances, they have an additional advantage: They don’t have to wait for their ex-spouse to claim Social Security benefits in order to claim their share. As long as the ex-spouse is eligible to claim — that is, at least age 62 — an ex-spouse who isn’t currently married and was married to the person for at least 10 years can claim spousal benefits.

But keep in mind that a spousal benefit is worth only half the worker’s benefit if claimed at normal retirement age and less if claimed earlier. A survivor’s benefit is worth 100% of what the worker received or was entitled to receive at the time of his or her death, if claimed at normal retirement age.

Spousal benefits can be claimed as early as 62. Survivor benefits can be claimed as early as 60.

But in both cases, benefits would be smaller than if claimed at normal retirement age, which is 66 and eventually will increase to 67.

So the question is, if Janis’ current husband dies, would she be better off collecting $16,000 per year in survivor benefits or half the amount of her ex-husband’s retirement benefit?

Given that the maximum retirement benefit this year is $2,533 per month or $30,396 per year, it is a close call with an edge to the survivor benefit. Of course, that could change in a few years as annual cost-of-living adjustments boost maximum retirement benefits, meaning that half of her ex’s retirement benefit could be more than 100% of her current husband’s survivor benefit.

The other fact to keep in mind is that though Janis’ retirement benefits were permanently reduced by 25% because she collected them four years early, her survivor benefits won’t be reduced if she is at least 66 when she collects them. So she could receive 100% of her current husband’s survivor benefit but less than half her ex-husband’s spousal benefit because she collected her own retirement benefits early.

But if Janis survives both her current and former spouses, she could switch to the first husband and double her Social Security income.