Surviving spouse - what are her options in these situations?

[HarlanM149937]

I am 68 years old and have delayed taking Social Security. Spouse is 64. She doesn't qualify for benefits, so she would be receiving a portion of mine when I pass. Would there be any difference in her benefit amount if I started receiving payments now vs. if I hadn't begun to receive payments at the time of my death? Also, if I began taking benefits now and subequently passed away, could my surviving spouse decline payments until she reachers her FRA of 67, and then receive the maximum benefit?

Thanks so much!

[Tonster521]

@HarlanM149937 As Gail pointed out, your Spouse is currently eligible for Spousal Benefits. She is eligible for Survivor Benefits should you predecease her. Without your birth dates and your Primary Insurance Amount (PIA), I will provide you a hypo of her Spousal Benefit that would be payable currently if you apply for your SS Benefits. At her age of 64, she is 3 years younger than her Full Retirement Age (FRA). So, her current reduction is 25% (25/36 of 1% or approximately .69444% per month). If your PIA was $1,800/month at FRA which, if you were born in 1956, was age 66 years 4 months, her Spousal Benefit will be $675/month ($1,800 X 50% X 75%). If she waits 3 years to age 67, she will receive $900/month or $225/month more. However, she losses $24,300 ($675 X 36 months) waiting. It will take 9 years to recoup ($24,300 divided by $225/month = 108 months). In addition, your PIA will increase due to Delayed Retirement Credits (DRC). The increase is approximately .00666 per month or about $12.00 per month which is 8% per year. If your birth date is February 1956, you have accrued 20 months of DRCs or about $240 per month. So, your PIA will be $2,040 per month. Remember, I used a hypo $1,800 for your PIA at FRA and have rounded to illustrate the approximate current amount of SS Benefits available for you and your spouse ($2040 plus $675 or $2,715) which amounts to $32,580 per year or about $65,160 should you delay for 2 more years. Because $65,000 is quite a sum of money, I suggest you schedule an appointment with the SSA and obtain exact amounts so you may be able to determine when it may be optimal to start you and your spouse's SS Benefits. Essentially, you are accruing DRC at 8% per year, but losing spousal benefits at 37.5% of the amount of your PIA at FRA. Survivor Benefits upon your death are a different calculation.

[fffred]

@Tonster521 

A good analysis. I follow (and agree with) your example numbers up to the point where you indicate "...or about $65,160 should you delay for 2 more years." I find it hard to understand how waiting two years allows their combined benefit to double, from $32,580 to $65,160.

Can you explain how this value was derived, please.

Myself, I took his $1800 PIA times 1.2933 (44 months of DRC) = $2,328, equals $27,936 per year. Spouse cannot collect spousal until he collects, so she will collect when she is 66. Her spousal will be reduced by "5/9 of 1%" per the SSA for the 12 months before her age 67 FRA; that's a reduction factor of (5/9)*12/100 = 0.0667; her spousal benefit is then (1 - 0.0667)*(0.5)*(1800) = $840 or $10,080 per year. Their annual combined benefits equal 27,936 + 10,080 = $38,736 versus the $65,160.

It is very easy to get caught up in these numbers and applying the factors (and looking them up). Possibly more to the point is to use a good software to perform the calculations. I use the Anypia32.exe software published by the SSA itself (it is free for download). I also use and recommend the (Free!) Open Social Security Calculator at https://opensocialsecurity.com/. It is very powerful and easy to use. It provides results for a wide range of scenarios (different claiming ages, etc); it automatically determines the optimal, or "best", claiming scenario plus you can plug in your own claiming ages for comparison. An effective new feature they have added is a "heat chart" that shows the results for an extremely large number of claiming combinations; this visually presents the "best" option and how other alternatives compare. I have also used the excellent commercial (paid) software "Maximize My Social Security" by Prof. Larry Kotlikoff.

The determination of what scenario is "best" can be open to interpretation. Some people look at the "break even" point, which you have pointed out in this example with the number of years to make up for the lost possible claiming years. Another characteristic of Social Security is its insurance aspect, particularly for survivors. (as an aside, note that both the software I mentioned above allow you to change the assumed interest rate that's often used in break even analysis).

In my own case, I drew benefits at age 70 and we plan for my wife to take spousal benefits at 62. As it turns out this is pretty much the "solution" presented to me by both of the software I mentioned. My own rationale for this claiming combination was (i) I wanted provide my widow with the largest possible survivor benefit and (ii) I figured she could claim early at 62 in order to boost our cash flow ("why have more, even excessive, income at a later time, when we could make use of it now") rather than maximizing her own benefit).

I would urge readers to especially check out the free (and easy) Open Social Security calculator. This will give you answers and clarity far sooner than waiting for the SSA representative to give you answers that are only partial to the big question.

[Tonster521]

@fffred Based on Harlan's questions, it is a two (2) year period unless he is planning to delay starting SS Benefits past age 70. As you know, there is no financial benefit for delaying past age 70. It is not clear if Harlan is asking about Spousal Benefits, Survivor Benefits, or both. Because he did indicate "her benefit amount" if he started receiving payments now (February 2024), I used a hypo $1,800 SS Benefit at FRA. We do not know their birth dates. I used February 1956 for Harlan (age 68) and February 1960 for his spouse (age 64). Because Harlan attained FRA at age 66 years 4 months, he has accrued 20 months of Delayed Retirement Credits (DRC) or about $240 per month. His SS Benefit is $1,800 + $240 or $2,040 per month. Because he starts his SS Benefits now, his spouse may start Spousal  Benefits now based on Harlan's PIA at FRA or $1,800 reduced by 50% and an early reduction of 25% (36 months X .69444) or $675 per month. So, Harlan and spouse are eligible now for $2,715 per month or $32,580 for one year and $65,160 for two years. If we looked back to the point in time when Harlan attained FRA, the amount will be greater than $65,160. Remember, they are collecting zero currently and need to live at least average life expectancy or longer to recoup the amounts they elected to delay. Hopefully, this will work out for them. This is why I suggested they schedule an appointment with a SS Representative and obtain accurate SS Benefit amounts.

[fffred]

@Tonster521 

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So, Harlan and spouse are eligible now for $2,715 per month or $32,580 for one year and $65,160 for two years. 

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Okay, so you are just taking the two years worth of total benefits beginning with he taking benefits at age 68.

I assumed you were recalculating benefits as if he would start in 2 years when he is 70. Sorry for the confusion.

Although I guess it is my myopia that I don't see how "2 years' worth of benefits" is helpful to this analysis.

Again, I would urge anyone who is weighing more than one SS claiming approach to crunch the numbers and the least painful way to obtain this is through the use of software, and I especially suggest using the free, web-based opensocialsecurity.com site (feel free to suggest alternates).

[HarlanM149937]

To clarify: My wife will be turning 64. I am 68. She doesn't qualify for and SS benefits of her own. She will receive my benefit when I pass.

[fffred]

@HarlanM149937 

Thank you for the clarification. Previously, based on Tonster's assumption that you were born in Feb, 1956 and your wife born in Feb, 1960 I ran your situation (with Tonster's assumed $1800 PIA) in the software I mentioned, opensocialsecurity.com (I have no relationship to them other than a user and enthusiast). If I remember correctly, the "best" claiming strategy was for you to claim at 70 and your wife to claim spousal at 66 (okay, I just took a minute to run this again and confirm).

I suggest try running this program yourself. The website is very informative regarding SS rules and claiming strategies. You can also enter your own desired claiming dates to check how that turns out.

Good luck!

[Tonster521]

@fffred Many of the software programs use longevity factors that for most folks are not realistic. The "Open Social Security" program applies a probability weighted annual benefit to age 115. How many folks live past age 90? 

I ran the age 70/spouse 66 and the age 68/spouse 64 (start SS Benefits now) and the difference in present value was $7,692 using probability weighed annual benefits to age 115 which is de minimis over a 45 year period of time. Essentially, Harlan and his spouse would forgo approximately $65,000 over the next two years (starting SS benefits mow) and try to recoup that amount over the next 43 years. I think many folks would opt for the $65,000 over the next two years by starting their SS Benefits now. If Harlan's spouse had Old Age (Retirement) Benefits, there would be a different strategy.     .

[GailL1]

Here is some things that have bearing on your situation.  NOTE:  There is a difference in some dollars between SPOUSAL BENEFITS (the Primary is alive) and SURVIVORS BENEFITS.(the primary is deceased).

Your wife can get SPOUSAL BENEFITS  anytime after she turns 62 - Spousal benefits are 50% of your (the Primary) benefit at your FRA.  But the Primary has to be drawing benefits for her to file for Spousal Benefits.

Since you have yet to file for your SS Retirement benefits, It sounds like you are trying to build up some delayed retirement credits - about 8% a year from your FRA to 70 years old - however the SPOUSAL BENEFITS will NOT include any delayed retirement credits which you, as the Primary may earn.  However, SURVIVOR BENEFITS do include any delayed retirement credits which you as the primary earns by delaying filing for your benefits past your FRA and age 70.  

The age when your wife decides to take her Spousal Benefits will make a difference also - the max of Spousal is 50% of the Primary’s benefit at FRA.  However, if she files for spousal benefits between 62 and whatever her FRA, there will be a % deduction for filing for early spousal benefits.  Therefore to get the whole 50% of the Primary’s benefit she has to be her own FRA and you as the primary has to have filed for benefits to open access to the Spousal benefits.

Now for SURVIVORS BENEFITS - at your demise, your wife, if she outlast you, will receive the same benefit that you were getting before your death INCLUDING ANY DELAYED RETIREMENT CREDITS.   But she will stop receiving any spousal benefits when she becomes a widow and begins Survivors  Benefits.  

You wrote:  “She doesn't qualify for benefits, so she would be receiving a portion of mine when I pass.”

That’s Survivors Benefits and she gets your WHOLE benefit when you pass, including any delayed retirement credits, as long as she is her own FRA.

Survivors Benefits are paid to widows who are at least age 60 at a reduced rate for filing early.  If she is FRA then she gets the whole amount.  At 50 if she has been declared disabled and at any age if she is caring for dependent children.

You asked:  “Would there be any difference in her benefit amount if I started receiving payments now vs. if I hadn't begun to receive payments at the time of my death?”

Since you are already 68 and are earning delayed retirement credits, the only difference, other than her age calculation, is that under Spousal Benefits she would NOT  get 50% of any delayed retirement credits that you have earned BUT she would get these delayed retirement credits under her Survivors Benefits.

SSA.gov - Survivors Benefits

[HarlanM149937]

Thank you for the helpful response. One other question. Can the surviving spouse elect to stop receiving the deceased's benefit upon his passing, and wait to resume until she reaches her FRA, thus maximizing her benefit?

[fffred]

@HarlanM149937 

That's a good point regarding temporarily halting SS benefits upon the death of the primary spouse (the one on whom spousal and survivor benefits are based).

The answer is a qualified "yes" (but possibly not for your wife's case based on your discussion). 

SS recipients who have their own work record and can receive a benefit based on their own record can elect to stay or postpone either the benefit based on their own record or their survivor (widow/widower) benefit. This requires submitting form SSA-4411.

   (Let me add a minor point for reference: when a spouse has their own SS work history then applies for spousal benefit their monthly benefit is taken as that based on their own work history; if the spousal benefit based on the primary account is greater then the spouse will get their own benefit plus the additional amount to make up to the full spousal benefit. This point can get glossed over at times but it can come into play in this matter of the survivor's benefit.)

But spouses who do not have their own SS retirement benefit (from not working or working where they're not covered by SS) and are currently collecting the spousal benefit do not have the option to put the survivor benefit on "hold". The spousal benefit will automatically be converted to the survivor benefit. If the spouse (without their own benefit) is not collecting spousal benefits then they can simply elect to wait until their FRA in order to collect their full benefit (which is what the primary earner was collecting, including any delayed retirement credits).

I studied this point carefully over a number of years as my wife falls into the latter category, she does not have her own work history. And she is 11 years younger than me so I checked a number of different SS rules and scenarios to make certain she would not be a pauper if I predecease her.

There is a lengthier, detailed discussion of your question in this forum thread, https://community.aarp.org/t5/Social-Security/Survivor-benefits/m-p/2523584

I have some other comments on related issues that I'll try to answer later. Suffice to say, if your wife/widow collects survivor benefits prior to her FRA her benefit will be reduced, similar to the way that spousal benefits are so reduced (although the reduction factors are different) BUT the reduction factor is based on the survivor's age at which they collect such benefits, the reduction is not based on the spouse's age when they initially took spousal (or their own) benefits. 

So if a wife (or husband) is younger than FRA, collecting spousal at, say, age 62, but then the primary passes a few years later, when the spouse is, say, age 66, then the benefit reduction factor is based on age 66, not on age 62. 

With your DRCs it can even turn out that they will counteract the reduction factor so the survivor can get a pretty healthy benefit. This is the gist of the other comments I may make, I actually crunched the numbers for my situation: my DRC is 1.32 (4 years), at age 61 (we plan for wife to take spousal at 62) her survivor benefit is reduced by 0.24429, but coupled with my own 1.32 DRC her survivor benefit at age 61 would be (1 - 0.24429) * (1,32) * (my PIA), or about 99.75% of my PIA (it only goes up from there if I die at a later year). Which is pretty comforting to me.    (well, maybe there's no need for my proposed additional reply. haha)   

To clarify, the reduction factor for my wife will change with each year (month) of her age, but my DRCs stay constant. Thus her survivor benefit will increase each year as a percentage of my actual benefit.

Edit to add: now if I can only hold on for another 7 years until wife reaches her FRA then she will get my full benefit, unreduced. Gotta keep going!

[Tonster521]

@fffred I agree that every situation needs to be reviewed separately. Also, longevity or the lack thereof (death) is an important time factor when trying to develop an optimal SS strategy whether Old Age (Retirement) or Survivor Benefits. You may be aware that the SSA uses two different approaches when developing the above SS Benefits. First, when someone starts Old Age benefits before attaining FRA, the Primary Insurance Amount is actuarially reduced so that based on an average life expectancy, the reduced benefit and the FRA benefit are actuarial equivalents. So, regardless of when someone starts, all  of the amounts provide the same amount of benefits based on average life expectancy. The key word is "average" as opposed to "individual". For many folks this concept is difficult to understand. The reduction factors are 5/9 of 1% for the first 36 months or .00556/month (6.67%/year) and 5/12 of 1% for months greater than 36 months or .00417/month (5.04%/year). For someone who attains FRA at age 67, starting at age 62 is about a 30% reduction. Second, if that person is a Survivor (male or female), the reduction is about .00339/month (4.07%/year). At age 62, the Survivor reduction is only about 20%. This is a huge subsidy in the Survivor provisions and not an actuarial equivalent. So, a $2,000 FRA gets reduced to $1,600 which is $19,200/year or $96,000 over the 5 year period. The survivor would need to live about 20 years to age 87 to recoup the $96,000 at $400 per month if the Survivor elected to wait to FRA (age 67) to start Survivor Benefits. I do not know if there is some sort of study that supports why a Survivor will get paid more than the Wage Earner. https://www.ssa.gov/benefits/survivors/survivorchartred.html#h3

[fffred]

@Tonster521 

I agree with your observation that SSA's rules for widow/widower benefits are intended to be actuarially neutral (same as for spousal benefits) regardless of the reduction for age.

As you describe, this means that it is "neutral" to their plan's coffers in the aggregate. But for any particular person the situation can (and will likely be) different. Each party needs to consider the various that affect their situation, including personal expected longevity, their survivor's needs, making an attempt to optimize cash flow over their expected lifetimes, etc. These points right here could make a doctorate thesis.

I am able to follow most of the mathematics you have included...the details of the calculations for reduction factors for the survivor (or spouse) prior to their FRA.

I am not certain that the "break-even" number for number of years for a widow/widower is relevant. At least it's not to me in my analysis for the situation of my wife and me.

I took my retirement at age 70 (my DRC is 32%). We plan for my wife to take her spousal benefit at 62 (as I gave details in another reply here). I paid particular attention to what my wife's financial situation would be in the event of my early demise and included a study of the reduction in widow's benefit should I pass any time in the period from when she begins collecting her spousal benefit to when she attains her FRA. Because if I die at any point in this period her widow benefit will be reduced from what it would be if taken at her FRA. So I wanted to investigate the quantitative effect, not just the broad brush.

Years  back I made the table below indicating my wife's age at my death, the calculated reduction factor for that year, the net widow's benefit factor (ie: 1 - reduction factor), and that net benefit factor multiplied by my own net benefit including the DRCs.

============================================================
Age N Reduc        Net         Net with DRC
67    0    0                1            1.32
66    12  0.04071   0.95929 1.26626
65    24  0.08143   0.91857 1.21251
64    36  0.12214   0.87786 1.15878
63    48  0.16286   0.83714 1.10502
62    60  0.20357   0.79643 1.05129
61    72  0.24429   0.75571 0.99754
60    84  0.285       0.715     0.9438

Age = Survivor's Age. I have assumed that 67 is their FRA
N = number of months between age at my death and FRA
Reduc = Reduction factor applied to survivor's benefit
Net = Net survivor's benefit factor = (1 - Reduc)
Net with DRC = Net factor with 1.32 Delayed Retirement Credit applied

For completeness, the table runs down to age 60, which is the youngest age at which the widow can obtain survivor benefits under normal circumstances.

Of course, the table could be expanded for monthly calculations but the yearly numbers should be sufficient for general scope planning.
============================================================

My wife is now 60. And disregarding the effect of what month I may die in, she would get 94.38% of my PIA. So this is pretty much what we would be getting if I hadn't delayed my SS retirement. And should I die next year, when she is 61, she will get 99.75% of my PIA...essentially the entire PIA. And it goes up each year...if I die at any year given in the table my widow will get the indicated factor of my PIA. If I can live until she is 67, her FRA, then I can die and she will get my entire benefit including the full DRCs.

My goal was to maximize my widow's potential benefit should I predecease her. And I wanted to see the numbers on SS in the event that I didn't consider them to be sufficient for her comfort. There is little sadder than seeing an impoverished widow.

Edit to add:   One reason why I don't think that the break-even analysis is relevant is that many SS beneficiaries actually have no choice (per SSA rules) to delay their widow/widower's benefit, they have no say as to when this is taken. But some others may have this ability (SSA Form 4411) and I suppose they may want to consider this issue as part of the primary issues that this form presents.

[Tonster521]

@fffred I am not sure if the reduction percentages for Spousal Benefits and Survivor Benefits are actuarial. Spousal Benefits are available at age 62 whereas Survivor Benefits are available at age 60. For a spouse (FRA age 66), the reduction percentages at age 62 are about 30% for Spousal Benefits and only 20% for Survivor Benefits. That is significant if the spouser has not attained FRA. If course, it is moot if the spouse is FRA or older. 

As you know, there are several approaches that folks may take with their SS Benefits. Some focus on the monthly benefit and others on the total benefits payable. For the folks that have the wherewith all to elect a strategy, delaying SS Benefits after FRA to obtain greater SS Benefit may not provide more total benefits. That person needs to live longer than the average life expectancy which the SSA tells us is somewhere between ages 83 and 84. This is gender neutral.I will try to link the SSA's Actuarial Life Table https://www.ssa.gov/oact/STATS/table4c6.html I believe a person can develop their strategy by using a range of realistic ages (i.e., 80,85, 90, etc.) based on their health status, family longevity, sibling's longevity, and sometimes just luck. Just using simple math without any other health/longevity input, a person at FRA age 66 with a SS Benefit of $2,000/month or $24,000/year may receive $408,000 for 17 years (using age 83). If that person delays to age 70, they will receive $2,640/month or $31,680 for 13 years or $411,840. So, the point of equality in time may be a couple of months prior to age 83. This is important because some folks believe they are receiving maximum SS Benefits from age 70. Using my example, at that point in time, they are down 4 years of SS Benefits or $96,000. There are a number of options ranging from investing to annuities to life insurance to staying with the SS Program and hoping the SS Program stays intact. 

[HarlanM149937]

These replies are pure gold, and I cannot thank you all enough. I think these questions are fairly universal, but the answers are not always readily available. I am going to study the responses in detail before taking the plunge. Thanks again.