Stuart: I have a 61-year-old widow as a client. Her husband just passed away at age 62. His full retirement age benefit is $3,100 a month. The widow currently works, earning $40,000 per year. Her retirement benefit is worth $1,300 at her FRA but just $850 per month if she claimed at 62. What’s the best way for her to maximize her Social Security benefits?
MBF: Although the widow is eligible to receive survivor benefits now at age 61, she would be entitled to about 75% of her late husband’s full retirement age benefit, and that amount would be further reduced by her earnings. Or she could file for her own reduced retirement benefits at 62 and switch to her maximum survivor benefits at her full retirement age. However, the earnings restrictions could totally wipe out her meager retirement benefit.
If she waited until her full retirement age to claim her survivor benefits, when earnings restrictions disappear, they would be worth 100% of her late husband’s full benefit of $3,100 per month, compared to about $2,325 per month if she claimed them now.
The fact that she is working and therefore subject to earnings restrictions further complicates her decision about when to claim benefits.
In 2021, she would lose $1 in benefits for every $2 earned over $18,960. That means her earnings exceed the limit by $21,040, which would reduce her survivor benefits by $10,520. She would have to forfeit five months of benefits to satisfy the earnings restrictions this year before her survivor benefits would begin. Similar earnings restrictions would apply each year until she reached her full retirement age.
At that point, any benefits lost due to excess earnings would be restored at full retirement age but the reduction for claiming early would be permanent.
If her goal is to collect the largest possible survivor benefit, she should wait until her full retirement age to claim it. If she stops working before then, she may want to collect a reduced retirement benefit first and switch to her maximum survivor benefit at full retirement age.
Mary Beth Franklin, a certified financial planner, is a contributing editor for InvestmentNews.
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