Widow’s dilemma: When to claim Social Security

Survivors are subject to an earnings limit if they claim the benefit before reaching full retirement age.

One of the most difficult — and essential — duties of a financial adviser is to help a client cope with the death of a spouse. Among the myriad financial decisions that a new widow or widower must make is if, when and how to claim Social Security survivor benefits. Several advisers contacted me over the holidays with questions about survivor benefits.

Barbara in Omaha said she’s working with a recent widow who’s 63. Her spouse died last July, also age 63. Neither had claimed Social Security yet.

“I have had a terrible time getting answers from Social Security Administration on the topic, including disconnected calls and one less-than-polite SSA rep,” she wrote. “The widow has a small Social Security benefit of $930 per month at her full retirement age. Her spouse would have had a [full retirement age] benefit of $2,300 per month.”

“My question is: Can the widow take discounted benefits on her own record (so $930 less the early benefit discount) and then at her full retirement age switch to the full retirement age survivor benefit of $2,300?” she asked. “I had someone at Social Security tell me she could not do that. But language from the Social Security website regarding widow benefits made me believe she could.”

“Yes, the widow can claim her own reduced Social Security retirement benefits first and switch to her maximum survivor benefits at her FRA,” I replied. Survivor benefit options are explained at this SSA website (www.ssa.gov/benefits/survivors/ifyou.html#h2):
• If you already receive benefits as a spouse, your benefit will automatically convert to survivors benefits after the Social Security Administration receives the report of death.
• If you’re also eligible for retirement benefits (but haven’t applied yet), you have an additional option. You can apply for retirement or survivors benefits now and switch to the other (higher) benefit later.
• If you became entitled to retirement benefits less than 12 months ago, you may be able to withdraw your retirement application and apply for survivors benefits only. If you do that, you can reapply for the retirement benefits later when they will be higher.
• For those already receiving retirement benefits, you can only apply for benefits as a widow or widower if the retirement benefit you receive is less than the benefits you would receive as a survivor.

[More: When can a widow collect her husband’s social security?]

The only catch to claiming survivor benefits early is if the widow is currently working. If so, her Social Security benefits are subject to earnings restrictions. In 2022, she would lose $1 in benefits for every $2 earned over $19,560 if she is under full retirement age for the full year. Earnings restrictions disappear at full retirement age.

That’s the situation another adviser, Ryan from outside of Boston, faced with one of his clients.

“The husband died in October 2020 when his wife was 60,” Ryan wrote in an email. “She was earning more than $90,000 a year at the time of his death. When she spoke to SSA, they said she would receive the $255 death benefit, but no survivor benefits.”

“The widow was denied survivor benefits because she earns too much money,” I explained. “All Social Security benefits — including survivor benefits — are subject to earnings restrictions if claimed before full retirement age.” The $255 is a burial allowance, which is not subject to earnings restrictions.

In 2022, she would lose $1 in benefits for every $2 earned over $19,560. With a $90,000 salary ($90,000 – $19,560 = $70,440 in excess earnings/2 = $35,220 in forfeited benefits.) That’s more than her annual benefits since survivor benefits claimed at 60 are worth only 71.5% of her late husband’s benefit, versus 100% if she claimed survivor benefits at her full retirement age.

“She may want to claim her survivor benefits at FRA when they are worth their maximum amount and delay collecting her own retirement until 70,” I advised Ryan. “Retirement benefits grown by 8% per year for every year she postpones claiming them beyond her FRA. Survivor benefits do not.”

Ex-spouses who were married at least 10 years before divorcing and who are single or who waited until age 60 or later to remarry may also be eligible for survivor benefits.

A widow, widower or surviving divorced spouse cannot apply online for survivors’ benefits. They should contact SSA at 1-800-772-1213 to request an appointment.

Another important fact for survivors to know: If the deceased was receiving Social Security benefits, they must return the benefits received for the month of death and any later months. If funds were received by direct deposit, ask the bank to return the money to SSA. If the benefits were received by check, don’t cash them and return them to SSA as soon as possible.

[Questions about Social Security rules? Find the answers in Mary Beth Franklin’s ebook at Maximizing Social Security Retirement Benefits]