Clearing up the confusion over survivor benefits

I am thankful to all my faithful <em>InvestmentNews</em> readers, especially those like Jon Smith, a financial planning consultant with Stifel Investment Services in St. Louis, who track of my blog posts and keep me honest.
DEC 16, 2013
“In an article you wrote on April 11, you say that survivor benefits do NOT accrue Delayed Retirement Credits.” Jon wrote in a recent e-mail. “In your June 18 article, you say they do accrue DRCs. What gives?” Good question, Jon. You spotted my mistake and I have since corrected it. I apologize for the confusion. Survivor benefits, if collected at full retirement age or later, are worth 100% of the late worker's benefits, including any delayed retirement credits the worker may have accrued at time of death. But a surviving spouse cannot increase the amount of his or her survivor benefit by waiting until age 70 to collect it. Survivor benefits are frozen in time at the date of the worker's death. They are worth 100% of what the deceased worker received or was entitled to receive; less if collected earlier. But they do not accrue delayed retirement credits after the death of the worker. In the April 11 article, “Widower can collect survivor benefits now, retirement benefits later,” I attempted to explain that when a surviving spouse is entitled to both retirement benefits on his or her own work record and survivor benefits based on a late spouse's earnings, he or she can choose when and how to receive each of those benefits. In that article, I said: “The client can continue to collect survivor benefits while he defers collecting his own retirement benefits until age 70. His retirement benefits will accrue delayed retirement credits worth 8% per year for each year he postpones claiming benefits between ages 66 and 70. Survivor benefits do not accrue delayed retirement credits.” Of course, that strategy would only make sense for an individual if the enhanced retirement benefit, including any delayed retirement credits, would be worth more than the survivor benefit. That is often the case for surviving widowers with substantial lifetime earnings, but not necessarily so for surviving widows with a spotty work history. In the June 18 article, “The question Social Security calculators can't answer,” I discussed the choices that one couple faced in deciding whether the wife should collect reduced retirement benefits now on her own earnings record or wait until she turned 66 to file a restricted claim for spousal benefits, allowing her own retirement benefit to continue to grow. In that article I wrote: “Remember, spousal benefits do not qualify for delayed retirement credits, but survivor benefits do.” That was an error. I meant to say “but retirement benefits do”. In the June 18 article, I went on to explain that the main goal for most married couples should be to maximize the survivor benefit. By delaying his claim for Social Security benefits until age 70, the husband had already locked in the maximum retirement benefit for himself and consequently, the biggest survivor benefit for his wife should he die first. Their choice about when the wife should claim benefits goes beyond the mere numbers that a Social Security calculator could supply. Only the couple and their financial adviser can decide after reviewing their entire retirement income plan, considering their other sources of income and assessing their health.

Latest News

Texas man says SEC and fund could make him pay twice
Texas man says SEC and fund could make him pay twice

A $141M judgment and a federal asset freeze collide over one shrinking pool

Osaic executives Kristy Britt and Greg Cornick to leave
Osaic executives Kristy Britt and Greg Cornick to leave

The firm's CFO and EVP of Wealth Management Solutions are the latest executives to exit the broker-dealer.

Estate planning becomes a client retention issue for financial advisors, survey finds
Estate planning becomes a client retention issue for financial advisors, survey finds

Clients are saying they would consider switching advisors if another professional offered estate planning services, according to a new Trust & Will survey.

Candidly adds AI agents for Trump Accounts, workplace benefits
Candidly adds AI agents for Trump Accounts, workplace benefits

CEO Laurel Taylor says the fintech's composable AI stack helps workers optimize dollars across Trump Accounts, 529s, 401(k)s, and other employee benefits.

BMO adds three advisors in Dallas amid Y'all Street wealth boom
BMO adds three advisors in Dallas amid Y'all Street wealth boom

The bank has swiped three private banking veterans from BNY as the city climbs the ranks of America's fastest-growing wealth hubs.

SPONSORED Who builds the income when the pension disappears?

Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income

SPONSORED Why direct indexing stopped being optional

Direct indexing is on pace to outgrow ETFs and mutual funds. Northern Trust's Ken Lassner explains why the advisors who get it wish they had started sooner.