Wife’s unexpected death draws Social Security questions

Regular readers of InvestmentNews know I often urge married couples to select a Social Security claiming strategy that will result in the largest possible survivor benefit. That is usually accomplished by having the higher-earning spouse delay collecting retirement benefits as long as possible — up to age 70 — to create the biggest retirement benefit.
That maximum retirement benefit translates into a survivor benefit after the death of one spouse. Assuming the surviving spouse is at least full retirement age — currently 66 — or older, he or she would be entitled to a survivor benefit worth 100% of the deceased worker’s benefit amount including any delayed retirement credits, which can increase a retirement benefit by up to 32%.
(More: 10 ways to maximize Social Security benefits)
That’s what one of Maureen Baxter’s clients had done. Ms. Baxter, a financial adviser with Commonwealth Financial Network, said her client had filed and suspended his Social Security benefits at age 66 in order to trigger spousal benefits for his wife. The idea was to maximize his retirement benefits, and consequently, the survivor benefit for his wife if he should die first.
Then the unexpected happened. Two years later, when he was 68 years old, his wife died.
Ms. Baxter asked whether the widower, who had filed and suspended at age 66, could file for survivor benefits on his late wife’s earnings record now and still allow his own retirement benefit to grow.
That’s a tricky question, and I wasn’t sure of the answer. So I asked the Social Security Administration’s press office. As usual, they didn’t fail me, but their answer surprised me.
“Since the widower is currently entitled to retirement benefits, even though his benefits are in suspension, he is potentially eligible for a widower’s benefit if his primary insurance amount (PIA) is less than his deceased spouse’s PIA,” SSA spokeswoman Dorothy Clark wrote in an e-mail. “If so, the monthly benefit payable to him while his retirement benefit is voluntarily suspended (continues to grow) is the difference in his PIA and that of his deceased spouse’s PIA.”
Translation: If the survivor benefit based on his wife’s earnings is larger than his own full retirement age benefit, he could collect the difference between the two benefits while his own retirement benefit continues to grow up to age 70.
But in this case, his late wife’s benefit is smaller than his own, so he wouldn’t be able to collect a survivor benefit.
(Related: Widower asks why he didn’t get survivor benefits)
Now he has a few choices about how to proceed.
He could continue to allow his Social Security benefit to accrue delayed retirement credits and collect his retirement benefit at age 70, which would be worth 132% of his full retirement age benefit. He might do that if his goal is to maximize his guaranteed lifetime income.
But, remember, the main reason that I urge married couples to maximize their benefits is to ensure the surviving spouse has sufficient retirement income. With the unexpected death of his wife, the client may want to claim his benefits now since his main reason for delaying them has vanished.
Or, he could choose a third option. Because he filed and suspended his benefits, he can request a lump sum payout back to the date of suspension in lieu of the delayed retirement credits. That means he could collect a lump sum of two years’ worth of Social Security retirement benefits and going forward receive monthly payments as if he had claimed at his full retirement age of 66.
This is an excellent example of how financial advisers can help clients sort through their options when life throws them a curve ball. They’ll be glad you’re on their team.
(Questions about Social Security? Find the answers in my new e-book.)