Some of my favorite column ideas come from readers' questions. This is one of them.
A financial adviser wrote to me recently regarding a client who wants to wait until age 70 to claim his Social Security retirement benefit to ensure that his surviving spouse would get the largest possible survivor benefit.
For each year people postpone collecting retirement benefits beyond their full retirement age, the benefit increases by 8%. Technically, the increase is two-thirds of 1% per month, which adds up to 8% per year. The delayed retirement credits end at age 70. A larger retirement benefit usually translates into a larger survivor benefit for the remaining spouse.
But the adviser had a few contingency questions.
"What happens if the client dies at age 69 before claiming Social Security?" the adviser wrote. "Does the spouse get the client's full retirement age benefit or the increased benefit amount?"
A surviving spouse is entitled to 100% of what the deceased worker was collecting or entitled to collect at the time of death, assuming the survivor is at least full retirement age when she claims the benefit.
So if the worker died at age 69 without collecting Social Security, his widow would be eligible for survivor benefits based on his age, 69, at the time of his death. The survivor benefit includes her late husband's full retirement age benefit plus three years' worth of delayed retirement credits valued at 8% per year.
A widow or widower is eligible to claim survivor benefits as early as age 60, but the benefits would be permanently reduced if claimed before full retirement age, and they would be subject to earnings restrictions if the surviving spouse claimed benefits early while continuing to work.
The adviser offered another hypothetical scenario: Could the surviving spouse wait another year to collect the maximum benefit based on what would have been her late husband's 70th birthday?
No. Survivor benefits are not eligible for delayed retirement credits. Waiting to collect them will not increase benefits to the survivor other than any cost-of-living adjustments that were applied between the time of the worker's death and when the survivor begins receiving benefits.
Survivor benefits are based on two factors: the amount of the benefit at the time of the worker's death, and the age when the surviving spouse claims them. Sometimes, surviving spouses can choose when to claim them.
If a widow has not collected any Social Security benefits at the time of her husband's death, she can wait until she reaches her full retirement age to claim the maximum survivor benefit. If she is also entitled to her own retirement benefit, she may be able to choose to collect one benefit first and switch to the other one later if it would result in a larger benefit.
For example, if a widow is entitled to a substantial retirement benefit on her own earnings record as well as a survivor benefit, she may want to collect the full survivor benefit at 66, allow her own retirement benefit to grow by 8% per year up to age 70 and then switch to her own benefit if it's larger.
But if the widow's survivor benefit would be larger than her own retirement benefit, she may want to collect a reduced retirement benefit early, assuming she is not working or not earning much more than the annual earnings limit, and switch to her full survivor benefit at her full retirement age of 66. Even though her retirement benefit would be permanently reduced if she collected it early, it would have no impact on her survivor benefit if she waited until 66 to claim it.
However, if a widow is already collecting Social Security at the time of her husband's death, and some or all of her benefit is based on her husband's earnings record, her spousal benefit would automatically convert to a survivor benefit upon his death.
Next year marks the final year that married couples and eligible divorced spouses who turn 66 in 2019 can choose to claim only spousal benefits at their full retirement age while allowing their own retirement benefit to continue to grow until age 70. But there is no similar expiration date for survivor benefits. Survivors will continue to be able to choose which benefit to claim even after 2019.
Clients desperately need advice on this critical issue. Earlier this year, the Social Security Administration revealed that an internal investigation found that, based on a random sample, agency representatives gave the wrong claiming advice to survivors in 82% of cases.