Pre-retirement earnings can limit Social Security survivor benefits

Life insurance can fill the gap when a survivor's earnings jeopardize benefits

Oct 16, 2017 @ 12:00 pm

By Mary Beth Franklin

As financial advisers and their clients become more aware of Social Security rules, many realize that if someone claims Social Security benefits before full retirement age and continues to work, their wages can reduce or eliminate their retirement benefits if they exceed certain thresholds.

But often financial professionals and consumers alike are stunned to learn that the same earning restrictions apply to survivor benefits.

Here's an example. One reader wrote to me recently noting that her husband of 25 years died in 2000. "At the time of his death, my minor children got benefits, but they said I made too much," she wrote. "Will that always apply while I'm under age?" she asked. "He would have turned 64 this year. I am 59."

In 2017, anyone who collects any type of Social Security benefits—whether as a retired worker, a spouse, a dependent child or surviving family member—lose $1 in benefits for every $2 earned over $16,920 if they are younger than full retirement age for the entire year. In the year they reach full retirement age, during the months preceding their birthday, there is a higher limit.

They can earn up to $44,880 in 2017 and would forfeit $1 in benefits for every $3 earned over that limit. Both of those limits will increase slightly in 2018. The income subject to the earnings test does not include pensions, withdrawals from retirement accounts, dividends, interest or other unearned income.


The earnings limit disappears when someone reaches full retirement age, meaning they can earn any amount of income without jeopardizing benefits. And benefits forfeited to the earnings cap are restored in the form of higher monthly benefits once someone reaches full retirement.

The current full retirement age of 66 applies to anyone born from 1943 though 1954. Beginning this year, the full retirement age is gradually increasing in two-month increments until it reaches 67 for anyone born in 1960 or later.

(More: Social Security benefits to increase by 2% in 2018.)

A recent white paper from Prudential Insurance Company explores the interplay between Social Security survivor benefits and life insurance.

"Families who, as part of their financial planning, are relying on the availability of survivor benefits in the event of a wage earner's death may not realize that the Social Security earnings test could reduce or eliminate those benefits entirely," the paper notes. "This can be devastating to a family depending on the income from survivor benefits, especially for a widow or widower caring for young children."

In the event of a wage earner's death, certain family members may be eligible to receive income in the form of survivor benefits. They include a widow or widower age 60 or older (50 if disabled) as well as a widow or widower of any age who is caring for the deceased's child who is under age 16.

In addition, an unmarried child of the deceased who is under age 18 (or 19 if still in high school) or a permanently disabled adult child is entitled to survivor benefits. The definition of child may include the deceased's stepchild, adopted child or under certain circumstances, a dependent grandchild. Surviving divorced spouses who were married at least 10 years may also qualify for survivor benefits.


Life insurance can help protect a family during the Social Security 'blackout period' that occurs when a surviving spouse is not eligible to receive survivor benefits because his or her child has reached age 16, but he or she has not yet turned 60 as in the case of the reader who wrote to me recently.

Life insurance can be a solution to help fill a survivor's income gap and make up for the amount of survivor benefits lost through the application of the earnings test or during a blackout period.

"Widows and widowers caring for young children should have enough life insurance to replace the income that the deceased wage earner generated for them, plus enough to offset additional expenses," the Prudential white paper recommends. "For example, the family may want to pay off a mortgage, save for college expenses, or the surviving spouse may need money to go back to school to be in a better position to help provide additional income for the family."

(More: Both spouses don't always need to delay Social Security until 70.)

In addition, widows and widowers should plan to replace hidden income that was received through the deceased wage earner's employer but wasn't part of their gross wages, such as the employer's subsidy on health insurance or the matching contributions to his or her 401(k) plan. This is often an overlooked insurance need: The cost of replacing a wage earner's health insurance and retirement contributions could total $2,000 per month or more, the report noted.

Critical information about a worker's potential retirement benefits, as well as survivor benefits for eligible family members, is available on an individual's Social Security estimated benefits statement. But as the Social Security Administration is no longer mailing those statements each year to most Americans, it is up to individuals to create a personalized Social Security account at to retrieve updated estimates.


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