Social Security payments can sometimes be a significant portion of a couple’s retirement income. If your spouse passes away unexpectedly, it can have a dramatic impact on your financial wellbeing in retirement. This is especially true if there was a big income difference between you and your spouse. In this article we will review:

Who is eligible to receive the Social Security Survivor Benefit
How the benefit is calculated
Electing to take the benefit early vs. delaying the benefit
Filing strategies that allow the surviving spouse to receive more from Social Security
Social Security Earned Income Penalty
Social Security filing strategies that married couples should consider to preserve the Survivor Benefit
Divorce: 2 Ex-spouses & 1 Current Spouse: All receiving the same Survivor Benefit

How Much Social Security Does A Surviving Spouse Receive?

When your spouse passes away, as the surviving spouse, you are entitled to receive the higher of the two benefits. You do not continue to collect both benefits simultaneously.

Example: Jim is age 80 and he is collecting a Social Security benefit of $2,500 per month. His wife Sarah is 79 and is collecting $2,000 per month for her Social Security benefit.

If Jim passes away first, Sarah would begin to receive $2,500 per month, but her $2,000 per month benefit would end.

If Sarah passes away first, Jim would continue to receive his $2,500 per month because his benefit was the higher of the two, and Sarah’s Social Security payments would end.

Married For 9 Month

To be eligible for the Social Security Survivor Benefit as the spouse, you have to have been married for at least nine months prior to your spouse passing away. If the marriage was shorter than that, you are not entitled to the Social Security Survivor Benefit.

Increasing Your Spouse’s Survivor Benefit

Due to this higher of the two rule, as financial planners we work this into the Social Security filing strategy for our clients. Before we get into the strategy, let’s do a quick review of your filing options and how it impacts your Social Security benefit.

Normal Retirement Age

Each of us has a Normal Retirement Age for Social Security which is based on our date of birth. The Normal Retirement Age is the age that you are entitled to your full Social Security benefit:

Should You Turn On The Benefit Early?

For your own personal Social Security benefit, once you reach age 62, you have the option to turn on your Social Security benefit early. However, if you elect to turn on your Social Security benefit prior to Normal Retirement Age, your monthly benefit is permanently reduced by approximately 6% per year for each year you take it early. So, if your normal retirement age is 67 and you file for Social Security at age 62, you only receive 70% of your full benefit and that is a permanent reduction.

On the flip side, if you delay filing for Social Security past your normal retirement age, your Social Security benefit increases by about 8% per year until you reach age 70.

There is no benefit to delaying Social Security past age 70.

How This Factors Into The Survivor Benefit

The decision of when you turn on your Social Security benefit will ultimately impact the Social Security Survivor Benefit that is available to your spouse should you pass away first. Remember, it’s the higher of the two. When there is a large gap between the amount that you and your spouse will receive from Social Security, it’s not uncommon for us to recommend that the higher income earner should delay filing for Social Security as long as possible. By delaying the start date, it increases the monthly amount that higher income earning spouse receives, which in turn preserves a higher monthly survivor benefit regardless of which spouse passes away first.

Example: Matt and Sarah are married, they are both 62, they retired last year, and they are trying to decide if they should turn on their Social Security benefit now, waiting until Normal Retirement Age, or delay it until age 70. Matt’s Social Security benefit at age 67 would be $2,700 per month. Sarah Social Security benefit at age 67 would be $2,000 per month.

They need $7,000 per month to meet their expenses. If Matt and Sarah both took their Social Security benefits at age 62, Matt’s benefit would be reduced to $1,890 per month and Sarah’s benefit would be reduced to $1,400 per month. At age 75, Matt passes away from a heart attack. Sarah’s Social Security benefit would increase to the amount that Matt was receiving, $1,890, and Sarah’s benefit of $1,400 per month would end. Since Sarah’s monthly expenses are still close to $7,000 per month, with the loss of the second Social Security benefit, she would have to withdraw $5,110 per month from another source to meet the $7,000 in monthly expenses. That’s $61,320 per year!!

Let’s compare that scenario to Matt waiting to file for his Social Security benefit until age 70 and Sarah turning on her Social Security benefit at age 62. By turning on Sarah’s benefit at age 62, it provides them with some additional income to meet expense, but when Matt turns 70, he will now receive $3,348 per month from Social Security. If Matt passes away at age 75, Sarah now receives Matt’s $3,348 per month from Social Security and her lower benefit ends. However, since the Social Security payments are higher than the previous example, now Sarah only needs to withdraw $3,652 per month from her personal savings to meet her expenses. That equals $43,824 per year.

If Sarah lives to age 90, by Matt making the decision to delay his Social Security Benefit to age 70, that saved Sarah an additional $262,400 that she otherwise would have had to withdraw from her personal savings over that 15 year period.

Age 60 - Surviving Spouse Benefit

As mentioned above, with your personal Social Security retirement benefits, you have the option to turn on your Social Security payments as early as age 62 at a reduced amount. In contrast, if your spouse predeceases you, you are allowed to turn on the Social Security Survivor Benefit as early as age 60.

Similar to turning on your personal Social Security benefit at age 62, if you elect to receive the Social Security Survivor Benefit prior to reaching your normal retirement age, Social Security reduces the benefit by approximately 6% per year, for each year that you start receiving the benefit prior to your normal retirement age.

Advance Filing Strategy

There is an advanced filing strategy associated with the Survivor Benefit. Social Security allows you to turn on the Survivor Benefit which is based on your spouse’s earnings history and defer your personal benefit until a future date. This allows your benefit to continue to grow even though you are currently receiving payments from Social Security. When you turn age 70, you can switch over to your own benefit which is at its maximum dollar threshold. But you would only do this, if your benefit was higher than the survivor benefit.

Example: Mike and Lisa are married and are both entitled to receive $2,000 per month from Social Security at age 67. Mike passes away unexpectedly at age 50. When Lisa turns 60, she will have to option to turn on the Social Security Survivor Benefit based on Mike’s earnings history at a reduced amount of $1,160 per month. In the meantime, Lisa can allow her personal Social Security benefit to continue to grow, and at age 70, Sarah can switch from the Surviving Spouse Benefit of $1,160 over to her personal benefit of $2,480 per month.

Beware of the Social Security Earned Income Penalty

If you are considering turning on your Social Security benefits prior to your normal retirement age, you must be aware of the Social Security earned income penalty. This is true for both your own personal Social Security benefits and the benefits you may receive as the surviving spouse. In 2020, if you are receiving Social Security benefits prior to your normal retirement age and you have earned income over $18,240 for that calendar year, not only are you receiving the benefit at a permanently reduced amount but Social Security assesses a penalty at the end of the year which is equal to $1 for every $2 of income over that threshold.

Example: Jackie decides to turn on her Social Security Survivor Benefits at age 60 in the amount of $1,000 per month. She is still working and will receive $40,000 in W-2 income. Based on the formula, of the $12,000 in Social Security payments that Jackie received, Social Security would assess a $10,880 penalty against that amount. So she basically loses it all to the penalty.

For clarification purposes, when Social Security levies the earned income penalty, they do not require you to issue them a check for the dollar amount of the penalty; instead, they deduct the amount that is due to them from your future Social Security payments. This usually happens shortly after you file your tax return for the previous year because the IRS uses your tax return to determine if the earned income penalty applies.

For this reason, there is a general rule of thumb that if you have not reached your normal retirement age for Social Security and you anticipate receiving income during the year well above the $18,240 threshold, it typically does not make sense to turn on the Social Security benefits early. It just ends up creating more taxable income for you, and you end up losing most or all of the money the next year when Social Security assesses the earned income penalty against your future benefits.

Once you reach normal retirement age, this earned income penalty no longer applies. You can turn on Social Security benefits and make as much as you want without a penalty.

Divorce

We find that many ex-spouses are not aware that they are also entitled to the Social Security Survivor Benefit if they were married to the decedent for more than 10 years prior to the divorce. Meaning if your ex-spouse passes away and you were married more than 10 years, if the monthly benefit that they were receiving from Social Security is higher than yours, you go back to Social Security, file under the Survivor Benefit, and your benefit will increase to their amount.

The only way you lose this option is if you remarry prior to age 60. However, if you get remarried after age 60, it does not jeopardize your ability to claim the Survivor Benefit based on your ex-spouse’s earnings history.

If your ex-spouse was remarried at the time they passed away, you are still entitled to receive the Survivor Benefit. In addition, their current spouse will also be able to claim the Survivor Benefit simultaneously and it does not reduced the amount that you receive as the ex-spouse.

There was even a case where an individual was divorced twice, both marriages lasted more than 10 years, and he was remarried at the time he passed away. After his passing, the two ex-spouses and the current spouse were all eligible to receive the full Social Security Survivor Benefit based on his earnings history.