Question about planning wife's SS benefits

[HaroldB930596]

 I have seen contradictory information about this question online and don't find anything on the SSA website that addresses it.

I am 75, the high wage-earner, and started collecting my benefits at age 70.  My wife is young and will have only a small benefit on her own earnings.  Assuming I am still alive when she reaches age 62, she will apply for her benefits of which the spousal benefit will be higher than her own.  So, the SSA will automatically give her the spousal benefit.  Now, I very much want her to wait until her FRA of 67 before she starts collecting the widow's benefit so that she gets all of my delayed retirement credits.  However, some info sources claim that upon my death the SSA will automatically switch her to her survivor's, since there will be no more spousal benefit.  I however want her to wait until her FRA, which would mean that when she loses the spousal benefit she would revert to her own retirement benefit to preserve the option to delay the widow's benefit.

 So, the question is, after my death, can she delay the survivor's benefit or will she be forced to take it immediately resulting in a lifelong reduction?

[Tonster521]

@HaroldB930596 You are correct. If your spouse applies at age 62, she will receive the higher of the two amounts, with her own Worker Benefit being paid first and then any additional amount needed to reach the higher Spousal Benefit being added on. It is a combined benefit. So, she will need to elect Survivor Benefits and file a Certificate of Election if you die before she attains age 67 (FRA).Take a look at my reply to fffred regarding the reduction factors for Survivor Benefits which are significantly less than the reduction factors for Worker Benefits and Spousal Benefits.

[fffred]

Further in my own case, I extended my term life insurance policy by 10 years so that it expires a month or so prior to my wife's 62 birthday. Again, this was because I didn't want to leave a poor widow.

Of course, widow's benefits can begin at her age 60. We are beyond that point now but it was reasonably convenient at the time to take out a 10 year term policy. My wife should be well set for the long term but the cash injection should I predecease her should be useful while other things get sorted out.

For someone in a similar position as for me or the OP, a term life policy could be useful to fill any gaps.

(which reminds me that at the time I was investigating this issue in-depth around 15 years ago I found that the risk for my wife was me dying early, rather than living a long life and spending all her inheritance. The risk for her being that she could be too young for any SS benefits and not have any cash flow coming in. That was my rationale for the term life policy. And we are beyond that risk pothole.)

[GailL1]

@fffred 

The life insurance extension is a good plan for coverage for her.  

[roachme]

Short answer is, if you die before her FRA, SSA will cancel the spousal and start the survivor benefit automatically because she is getting spousal.  However, she can call them right away and cancel the survivor benefit from starting and revert to her own benefit until her FRA and then start the survivor benefit.

She may have to submit a written statement to SSA to the affect that she wishes to stop the spousal benefit and decline the widow benefits until a later time.  The local SSA office should provide guidance.

[fffred]

@HaroldB930596  I am in a similar situation. My wife is 11 years younger than me. I drew my SS at age 70, for the purpose of leaving my wife a larger widow's benefit should I predecease her. We plan for her to draw spousal benefits at age 62 in order to have a larger cash flow while we were young enough to make use of it. She has no work history in the US so she will have no other SS benefit (she is a Canadian citizen and did not work in the US). I have studied this issue a lot; I did not want to leave a destitute widow!

Pertinent points are:

* my wife's spousal benefit will be reduced when she takes at age 62, 5 years prior to her FRA of 67.

* Widow's benefit will also be reduced (by different factors than for spousal) if taken before FRA

* However, the "taken before FRA" is based on the spouse's/widow's age at the time of the primary insured's (me) death. So my wife takes reduced spousal at 62, if I can hold on until she's 66 she will get a reduced widow's benefit because she'd be younger than her FRA, but the reduction is based on only 12 months prior to her FRA, not the full 60 months as her spousal benefit reduction would be based on.

* If I hold on until she is at her FRA she will not be subject to any reduction in her benefit

* Widows are entitled to a benefit that includes consideration of the Delayed Retirement Credits that the primary insured (me) had earned. But spouses' benefits do not include any DRC's

* Widows who have a SS benefit based on their own work history may indeed postpone their survivor's benefit until a later age (or even take the survivor benefit and let their own benefit lie fallow until a later date). There is a specific SSA form for this, though I can't think of it at the moment. I know that I have discussed/mentioned this form on this forum in the past. Some widows/widowers might find this tactic to be advantageous. But if the widow does not have a benefit on their own work record then this technique is not permitted, the SSA automatically converts the spousal benefit to the widow's benefit (this is my wife's situation, so I made certain to study this carefully).

This recent thread discussed some of these same issues, you may find it helpful: https://community.aarp.org/t5/Social-Security/Unsure-when-to-start-drawing-SS-benefit/td-p/2587213

[Tonster521]

@fffred You raise an important mathematical fact in your third pertinent point (aka bullet points). The reduction factor for Survivor Benefits is 28.5% spread over 7 years  (ages 60 to 67) or .04071 per year. It is a longer fraction, but for purposes of my reply I truncated some of the numbers and will call it .04 or 4% per year for ease of calculation. These reduction factors are favorable for Survivor Benefits, When compared to the reduction factors for FRA at age 67, Worker Benefits are reduced 30% at age 62 whereas Survivor Benefits are only reduced 20% at age 62. 

Here is an example for a Survivor who is age 66 (FRA age 67), hypothetical Worker Benefit of $3,000 or $36,000 per year. Do you delay $34,560 ($2,880 X 12 months) payable at age 66 to obtain an increase of only $1,440 to reach the maximum Survivor Benefit of $3,000 payable at age 67? It will take approximately 24 years for that Survivor to recoup $34,560 at only $1,440 per year. As you know, I used 0% as the discount rate. Using a realistic discount rate (i.e.,2%, 3%, etc.) will increase the years needed to recoup $34,560. So, will the Survivor live long enough ages 91 or longer? It is abundantly clear that folks need to review longevity factors when electing  a SS Benefit strategy. FYI, electing Survivor Benefits at age 65 when FRA is age 67 will still require the Survivor to live to the 90s at a 0% discount rate to recoup delaying for two years. You may rework the numbers for 3 or more years to arrive at an optimal strategy. Be careful with some of the calculators that are on the internet, they have life expectancy probabilities that assess a factor for living to ages well over 100. 

[HaroldB930596]

 When considering when to take SS benefits it is a fundamental error to apply a break-even analysis, which is appropriate for an investment, since "buying" more SS benefits is an insurance decision, not an investment.  For nearly all US seniors SS benefits are the only source of income they cannot outlive.  The adverse outcome whose cost we want to pass to the insurer is hitting the trifecta: old, sick and broke.

 I think you probably know this and that you consider the decision to delay Survivor Benefits an exception, because of the lower penalty for early election.  Therefore, the better thinking to guide the decision in the case you suggest is to consider whether the #34,560 is worth more to you at 65 than in your 90's when your portofolio might be exhausted and SS is all you have to live on.  As always in discussions of delaying SS, the choice is only available to those who can afford to wait.  If you need the benefits to pay the rent, then you have no choice to make.

 If you do indeed die before reaching the "break-even" you have not left money on the table; your retirement plan has succeeded since you did not go broke.  

[Tonster521]

@HaroldB930596 Where did you read that break-even analysis is a fundamental error in evaluating when to elect SS Benefits? The Time Value of Money (TVM) is a critical concept in Discounted Cash Flow (DCF) analysis. It is an integral part of financial planning and risk management. It is critical when evaluating pensions that are actuarially reduced based on a participant's age or early start, when evaluating a lump sum settlement vs. a stream of payments (I.e., workers compensation, occupational disease, etc.), when evaluating a lump sum lottery award vs. a stream of payments, whether to delay social security benefits, and so on. DCF is used when evaluating the cost a new machine, a new computer system, and so on. And, as you indicated, investments. One of the factors that is needed is a discount rate (1%, 2%, 3%, etc.). Another factor is time. When evaluating SS Benefits the time factors are you and your spouse's (if married) longevity. Many folks will state that they do not know when they will decease. So, use an average or develop multiple time factors with different ages. The SSA  provides an informative article to help folks with the decision to delay or not.  https://www.ssa.gov/policy/docs/ssb/v76n2/v76n2p1.html I suggest carefully reading the article especially with regard to discount rates and longevity (time factor). It will help put the "when should I start SS Benefits" on a mathematical level field. Of course, folks will have unique circumstances such as their health status, lifestyles, dangerous habits/activities, etc. that may affect longevity. This is why using just an average life expectancy (i.e., ages 83 to 84) may not be appropriate in every case. The average is gender neutral which extends males and reduces females somewhat. I am including the SSA's Actuarial Life Table for your review  https://www.ssa.gov/oact/STATS/table4c6.html It should be noted that approximately 68% of males and only 52% of females are deceased by age 84 which is the average. So, the females help increase the average life expectancy (gender neutral average).

One of the goals is to compare SS Benefits on as "level of a field" as you can develop. If you read the SSA article which I strongly recommend, you will learn that the SS Program uses a discount rate around 2.9%.  I have always rounded this discount rate to 3% for the readers who elect to do their own calculations. I have known for years that the Survivor formula is extremely favorable when starting before FRA at 67. It is approximately 4% (.04) per year. In the hypo I included in my reply to fffred, I indicated that a Survivor at age 66 (FRA 67) has a choice to start a reduced Survivor Benefit of $2,880 or delay 1 year to age 67 and start an unreduced Survivor Benefit of $3,000 or $120 more. Using a 0% discount rate which is equivalent to placing the $34,560 (12 months at $2,880) in a non interest checking account or the "proverbial mattress", it will take that Survivor 24 years (288 months) to recoup/equal the $34,560 ($34,560 divided by $120/month) or approximately age 91. Another way of stating this (which may be confusing for some readers) is, the present value of $120/month for 288 months is $34,560 at 0% discount rate. If I used the same discount rate that the SS Program uses or approximately 3%, the Survivor will probably not live long enough to recoup the initial $34,560 which is growing year by year. Remember, the Survivor Benefit does not grow after attainment of FRA or age 67 outside of annual inflation adjustments (i.e., 2.5%, etc.) if applicable. Remember, inflation is payable on the reduced Survivor Benefit of $2,880 or the unreduced Survivor Benefit of $3,000. The difference using 2.5% for 2025 is $3.00 per month or $36.00 per year. I would consider this de minimis. 

With regard to the trifecta (not the bet on horses and/or dogs). I can't offer a solution to getting old. As you know, everything is OK until it is not OK. However, you can buy supplemental Medicare coverage as well as Long Term Care coverage as opposed to self insuring. You can transfer some of your assets or buy annuities with guaranteed income provisions to avoid going broke. Good Luck.

[HaroldB930596]

 What happened to the detailed reply that I posted a few hours ago to this post by Tonster521?

[fffred]

@HaroldB930596  I have a copy of the missing post; an update email was sent by AARP because I was subscribed to this thread. You made excellent counter-points to the "break-even" approach; counter-points that I subscribe to myself.

[HaroldB930596]

 Thanks for the kind words.  Yes, "break-even" analysis is indeed the wrong approach to analyzing the SS lifetime annuity.

 Is there some way to contact the moderator other than posting in the thread?  Do the moderators arbitrarily delete posts without explanation?

 I would like to ask the moderator to restore the post.  If not, then I will delete my account.  

[fffred]

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@HaroldB930596 wrote:

 Is there some way to contact the moderator other than posting in the thread?  Do the moderators arbitrarily delete posts without explanation?

 I would like to ask the moderator to restore the post.  If not, then I will delete my account.  

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Harold, a direct way to contact moderators is to click the "Report" button below any post, then a text box comes up in which you can state a case. You might click the button on your post asking what happened to your previous post.

Or, I have seen some others posting about removed posts (by themselves or others) in the "General Help" or "About Our Community" sub forums.

I have found your thread here to be interesting and should be informative to many others who come across it. Good luck on all fronts.

[roachme]

Form SSA-10 is the one.

[fffred]

@roachme Form SSA-4111 is the one I was thinking of. I couldn't find it the other night (past my bedtime). It was hard to track it down. Thanks for your input on the issue.

[HaroldB930596]

 I understand all the provisions you have mentioned, but an important question remains.  Some explanations report that the widow has to apply for the widow's benefit.  (One of the links to the SSA in the thread you recommended implies this, but does not state it plainly.)  Other accounts claim that when if the wife is receiving spousal benefits when the husband dies the SSA will automatically stop her spousal benefit and start her widow's benefit without her having to apply.  This feature would be similar in principle to the wife applying for benefits while husband is still alive in which case the SSA would automatically give her spousal benefits if greater than her own worker's benefits.

 So, it appears that there may be a risk that if my wife applies for benefits while I am still alive, receives the spousal benefit, but then I die before she reaches her FRA, then she would receive a permanently reduced widow's benefit for life.  That's the outcome I am trying to avoid.  If that risk is real, then it might be better for her not to apply for any benefits until her FRA even if I am still alive.

Another question.  The explanations I read say that the widow who has reached her FRA will receive the husband's primary benefit at his FRA plus any DRCs he has earned.  That implies, but does not state, that her widow's benefit will be less than her husband's benefit at death, because it will not include the COLAs he has received since his initial claim.  Is that the case?

[fffred]

@HaroldB930596 

That's awesome, sounds like you have a good handle on this issue.

Whether or not the widow/widower has to apply for survivor benefits depends on if they were receiving spousal benefits already. If they were receiving spousal, then the change to widow's benefit may be automatic. If the survivor was receiving no benefit or only their own benefit then they can elect to take the survivor's benefit now, or postpone until a later date. (related to this point is that SS beneficiary applications now are considered to be "deemed", if an applicant is married and has their own work record then applying for their own benefit "deems" them to have filed for spousal as well, and vice versa.) I believe that if a spouse is receiving a combo of their own benefit as well as spousal (this would occur because of the "deemed" nature and if the spousal benefit is greater than their own benefit) they can elect to postpone the survivor's benefit until a later date...such as when they might be at their FRA, so their benefit wouldn't be reduced. Of course, in this situation they make have a lower cash flow for several years...between the time of their spouse's death and their own FRA...so up to maybe 6 years or so max.

There is an "election form" that the survivor will (can/should submit), Form SSA-4111 (https://www.ssa.gov/forms/ssa-4111.pdf). I suggest studying this election form and instructions. Your spouse/widow may be able to postpone survivor's benefits. My own wife/widow will not be able to do so because she will not have a benefit based on her own record.

You may find this Forbes article by Professor Larry Kotlikoff to be a useful reference about this issue and Form SSA-4111, see https://www.forbes.com/sites/kotlikoff/2016/03/21/social-security-qa-how-many-other-widows-are-they-...

The SS Handbook provides a few pages that address this issue, see https://www.ssa.gov/OP_Home/handbook/hbkindex-W.html, especially pages https://www.ssa.gov/OP_Home/handbook/handbook.04/handbook-0405.html and https://www.ssa.gov/OP_Home/handbook/handbook.04/handbook-0407.html, and probably some others.

On your other question, "yes, all of the intervening COLAs are included in your widow's benefit"

[HaroldB930596]

 Thanks so much.  This is what I was looking for, the links to the Handbook in particular.

I am well aware of Larry Kotlikoff having used his software for many years.  In fact, I had a conversation with him a few years ago when I noticed that MaxifiPlanner had a bug on this very issue.  Kotlikoff is exceptionally generous with his time.

 On the one hand, it looks like my wife should be able to follow the optimal strategy, but on the other hand she may have to fight with the SSA to get what she deserves.  Since, although a US citizen, English is not her first language, I am not sure that she would be able to take the SSA to task and wouldn't have an advocate with the influence of Kotlikoff.  

I notice how bureaucratic SSAese differs from standard English, for instance in the incorrect use of semi-colons, which can only join clauses, not sentences which the capitalization implies here.   After much rereading I conclude that the conditions in 405.1 can only be read as:

  (A and B) must be true or else C must be true.

 But it could have been clearer.

 By the way, your statement in your second paragraph is not quite correct.  When the widow in our scenario has to apply for the widow's benefit depends not on whether she was already receiving spousal benefits, but whether she was entitled to benefits on her own earnings and entitled to spousal benefits.  If she is only entitled to or receiving spousal then, boom, she gets the widow's benefit, possibly reduced.  But if she is entitled both to spousal and worker's benefits then widow's benefits are not automatic.  So, in our case my wife should be able to apply at age 62 being entitled to both own record and spousal and then receive the spousal.  Then if I die before her FRA she should have to file a Certificate of Election at the time of her choosing in order to receive her widow's benefit.  Is this not correct?

[fffred]

@HaroldB930596 I believe that what I intended to write is correct, but perhaps I didn't word it properly. In any case, that's why one shouldn't accept as fact views of fact from random strangers...it's always best to direct to documents from an official source, whatever the topic is.

To that end, while the Social Security Handbook is very handy, you may want to refer to other SSA references that are "more official".

See the POMS, Program Operations Manual System. These are the daily "rules of the road" that the SSA and employees are to follow, based on the laws. https://secure.ssa.gov/poms.nsf/home?readform

Then see the Code of Federal Regulations ("CFR") which cover everything from nuclear power plants to Social Security, etc. These are the laws passed by Congress and signed into law by the President. See https://www.ssa.gov/OP_Home/cfr20/cfrdoc.htm

Both of these documents are very useful for research.

I agree with your concern about someone (such as your spouse) not being able to navigate through the SSA bureaucracy. I have read numerous real horror stories, and I have been fed malarkey by reps on the phone, very officiously, until I quoted chapter and verse. I have concerns for my wife should I predecease her. She was born in the Philippines but grew up in Canada (and speaks English like a native speaker), then lived with me in the US for 25 years. We both now live in Canada. She has a good understanding of what I expect that she will receive from SS but she may not have the interest to follow through. I want to put together a "death book" with instructions on how to navigate the SSA in her case and situation, as well as the myriad of other financial concerns.

[HaroldB930596]

 Thanks for the additional links which I will search.

 This topic came up as I am about to do our annual update our own "death book."  Just by the way since you are in the preparation stage, there are two tools that I have found exceptionally helpful for the eventual transition of our finances to my wife:

 Quicken - long, long time user.  All accounts brokerage, credit card, bank accounts, etc. are reconciled every month.  We do more and more of the updating together, but eventually I will turn all of it over to her for test periods.  Monthly reports for all accounts are archived within Quicken.

 1Password password manager.  1Password is excellent, but there are other similar products.  It allows me to share password access safely with my wife on an account by account basis going forward without having to update her when a password gets changed. 

 The usage of these software products assures me that she will not have to go fumbling around for documents to find our assets.

 Since keeping this critical data on my laptop will not reliably assure her access  after my death our master Quicken installation runs on a virtual machine in the cloud, Google Cloud Services in this case.  (A virtual machine allows the user to login to a Windows system in the cloud and run Quicken right there.) Although I keep a backup copy on my laptop, she can accomplish every task on the vm from anywhere with internet access.  1Password is a networked application she can run from anywhere on any of her computers.  

 Anyway, good luck with your planning effort.  It's a challenge.

[WebWiseWoman]

`

[HaroldB930596]

 What are you on about?