Social Security Survivor Benefits: Timing Strategies After Early Retirement

Jim Blankenship, CFP, Blankenship Financial Planning, answered a recent question we received from a reader:

If my wife takes her Social Security at 63 and later I die, will her survivor benefit be reduced because she retired early?

This is the one situation when there can be some planning strategies to employ, regarding when to file for various benefits. This is because survivor benefits are independent from retirement benefits, and as such, it is possible to delay one while collecting the other, and vice versa, not impacting the future amount of the benefit that you have not yet filed for.

When one member of a couple is deceased, the surviving member of the couple has a unique planning decision point – upon reaching age 60, the surviving spouse could begin receiving a survivor benefit based on the late spouse’s earnings record. On the other hand, it could be advantageous for the surviving spouse to wait until age 62 and begin taking his or her own retirement benefit.

Taking either benefit leaves the opportunity to apply for and receive the other benefit at some later date. This assumes that the other benefit is either a larger amount or could become a larger amount due to the delayed filing date.

Depending on the age of the survivor and the amount of the various benefits available to him or her, planning when to receive benefits could make a huge difference in the amount of overall lifetime benefits that he or she receives.

Using the reader’s question as a starting point, the fact that the surviving spouse had started receiving benefits early will have no impact on future survivor benefits. The same would be true in vice-versa: if she were eligible for survivor benefits first, filing early for that benefit would have no impact on future retirement benefits based on her own record, assuming that those retirement benefits would at some point be larger than the unreduced survivor benefit.

Take for example Michelle, who recently lost her husband Thomas. Michelle is about to turn 60 this year. Thomas was a few years older than Michelle and he’d been delaying his filing for Social Security benefits until his age 70. Unfortunately he only lived to age 65 – so Thomas did not receive any benefits at all from Social Security.

Had Thomas lived to his full retirement age (FRA) of 67, he would have been eligible for a benefit in the amount of $2,500 per month. Michelle has also worked and earned a benefit that will be $2,800 per month if she waits until her FRA (also 67) to file for benefits.

Since Michelle will be eligible for the survivor benefit at her age 60, and then later eligible for her own retirement benefit, she has a decision to make. (For the purposes of this illustration we’re assuming that Michelle has either left the workforce or down-shifted her career to a point where she’s not limited by the earnings test.)

If Michelle wanted to, she could begin receiving the survivor benefit based on Thomas’s earnings record as early as age 60. At this point, the benefit would be reduced to the minimal limit, which is $1,787, or 71.5% of the full possible amount. But if she waits until she’s 67, she’d be eligible for the full $2,500 per month.

On the other hand, Michelle could wait until her own age 62, when she would be eligible for a retirement benefit based on her own record. This age minimizes her benefit (similar to the age 60 survivor benefit), such that her expected benefit would be reduced to $1,960. Much like the survivor benefit, if Michelle waits until age 67, her retirement benefit would be unreduced at $2,800 per month. Waiting until her age 70 to file, Michelle would be eligible for a maximized benefit in the amount of $3,472 per month.

Comparing these two situations, at first you might think the second one is the better option, since it’s $173 more per month. But Michelle would have to wait for two more years before she takes that option, forgoing $42,888 over that period, $21,444 per year. Let’s look a bit deeper into this planning process to get some more information.

We mentioned before that Michelle could receive the full amount from either benefit if she waits until her age 67 to file. Retirement benefits and survivor benefits are not affected by the “deemed filing rules” – which means that filing for one type of benefit does not affect the ability of the individual to delay filing for the other type of benefit. So Michelle could file for the survivor benefit at any point along the line prior to filing for her retirement benefit, and this would not reduce the amount of the retirement benefit in the future.

Vice versa, Michelle could file for her own retirement benefit and delay filing for the survivor benefit until later and the survivor benefit is not impacted by the early filing for the retirement benefit.

Therefore, Michelle could start the survivor benefit right away and receive that $21,444 per year for two years, and then switch over to her own retirement benefit at age 62. This would increase her annual benefit to a total of $23,520 per year, an increase of more than $2,000 per year. If she waits another five years before filing (while collecting the survivor benefit all along), she could receive her full retirement benefit of $2,800 per month, or $33,600 per year, an increase of more than $12,000 annually. Delaying another three years would garner Michelle a maximized benefit of $3,472 per month, for a total of $41,664 per year. This is an increase of more than $20,000 over the reduced survivor benefit.

Working this in the opposite direction, Michelle could start her own benefit at age 62 in the amount of $1,960 ($23,520 per year). Then at her age 67, she could switch over and start receiving the full survivor benefit in the amount of $2,500 per month ($30,000 per year).

If you run the numbers on these two scenarios, it’s pretty clear that Michelle should take the survivor benefit first and her own retirement benefit second – and pretty much no matter what timeline you use, this method will result in a larger amount of benefits for her over her lifetime.

If the survivor benefit was significantly more than Michelle’s own retirement benefit, there could be an argument for starting the retirement benefit at age 62 and then later filing for the survivor benefit. Depending on the circumstances and Michelle’s need for income, an early filing for survivor benefits might be necessary, however.

Take Paul for an example. His wife Janice recently passed away at the age of 65. Paul is just about to reach age 60. Janice had been delaying filing for her retirement benefit, anticipating $3,000 per month at the age of 67. Paul’s retirement benefit is significantly less, with an expected full retirement age benefit of $1,200 per month.

Paul could start receiving the survivor benefit upon reaching age 60, for a benefit amount of $2,145 per month. He could also wait until his age 62 and start the retirement benefit at a monthly rate of $840. Again, it looks like the best option for Paul would be to start the survivor benefit right away because at no point in the future would his retirement benefit be greater than the survivor benefit.

However, if Paul has other resources available, such as a 401(k) or IRA plan to draw income from, it might be in his best interest to draw money from that account and delay filing for the survivor benefit. After all, if he waits until age 67, the survivor benefit would have increased to the full $3,000 per month, or $36,000 per year. As long as he has approximately $150,000 or more available in this retirement account, drawing these funds would allow him to delay his filing and maximize the survivor benefit. Plus, he’d be able to receive the reduced retirement benefit during the later five of the intervening seven years (from age 62 to 67), augmenting his available income by $10,000 per year.

But if Paul doesn’t have any other resources available, he might need to use the survivor benefit option earlier in order to meet his income needs. Another option for Paul might be to take on some form of employment in order to delay his filing date, as each month of delay will serve to increase his future benefit.

In both examples I’ve only outlined the earliest filing ages. It should be noted that the filing for each of these benefits could be at any point after the earliest (illustrated) filing age, up to the maximized filing age for each type of benefit.

There’s no cut and dried answer to which benefit is appropriate to take at which time, as the individual circumstances will dictate the proper order for taking benefits. But just knowing that there are options to choose from is valuable to know as you approach this decision.

About the author: Jim Blankenship, CFP

Jim Blankenship, CFP®, Blankenship Financial Planning, is a blogger and author of ”A Social Security Owner’s Manual” and ”Social Security for the Suddenly Single: Social Security Retirement and Survivor Benefits for Divorcees.”