Choosing between survivor and divorced spouse's benefits

It’s a well-known fact that women tend to outlive men in the U.S. by about five years. Women also tend to marry men who about two years older than they are. The combination of women’s longevity and their older partners is a recipe for widowhood.

In addition, while baby boomers were more prone to marry than younger cohorts, they now are also more likely to divorce later in life — a trend known as “gray divorce.”

So what happens when the two demographic trends — widowhood and gray divorce — converge in one client? Patrick, a financial adviser from Iowa, asked for guidance on advising his 60-year-old widowed client on which Social Security benefit to claim first, and when. His client was divorced from her first husband after a 20-year marriage and was recently widowed when her second husband died. The client, I’ll call her Sue, is working part-time and earns about $12,000 per year.

Sue’s Social Security retirement benefit at her full retirement age of 67 is about $1,200 per month. Her late husband, who died at 60, would have had a full retirement age benefit of about $2,300 per month. Her ex-husband, age 61, also has a full retirement age benefit of $2,300.

“Should the client claim her survivor benefit now or wait?” Patrick asked. “Then later, when should she turn on her own Social Security income stream?” Finally, he asked, “Is the first husband a consideration?”

It is certainly an interesting case. Let’s unpack her possible benefits.

When Sue remarried, she lost the right to claim spousal benefits on her ex-husband. But now that her subsequent marriage has ended as a result of the death of her second husband, she's considered single by the Social Security Administration.

Therefore, she is potentially eligible for three benefits: her own retirement benefit of $1,600 per month at her full retirement age; survivor benefits based on her deceased second husband’s earnings record; or spousal benefits on her first ex-husband if they're larger than her own retirement benefit.

Survivor benefits are available as early as age 60, but retirement and spousal benefits are not available until age 62 at the earliest. And to claim benefits as an eligible divorced spouse — one married at least 10 years before divorcing — both ex-spouses must be at least 62 years old.

So the first conclusion is the widow is currently eligible to claim survivor benefits, but is too young to file for her own Social Security retirement benefits or for benefits as an ex-spouse. But just because she could claim survivor benefits now, should she?

All benefits — retirement benefits, spousal benefits, and survivor benefits — are reduced if they're claimed before full retirement age and reduced even further if the beneficiary is working and earning more than the annual earnings cap. 

Survivor benefits are worth up to 100% of Sue's late husband’s benefits — $2,300 per month in this case— if she claims them at her full retirement age. But they would be worth just 71.5% — about $1,645 per month — if she claims them now at age 60. Although Sue is working part-time, her earnings of $12,000 per year are well below the annual earnings limit of $19,560 in 2022, so she wouldn't lose any additional Social Security benefits due to excess earnings.

Survivor benefits are worth the maximum amount if the widow claims them at her full retirement age. They don't increase by 8% per year between full retirement age and age 70 the way that retirement benefits do.

If Sue delayed claiming her own retirement benefits until age 70, they would grow to about $1,984 — less than the maximum survivor benefit of $2,300 per month she could claim at her full retirement age.

So the big question I asked her adviser Patrick: Does she need the money now?

If not, Sue may want to wait until age 62 to collect her reduced retirement benefit and then switch to her maximum survivor benefit at her full retirement age.

At age 62, she would receive the 70% of her full retirement age retirement benefit, which would be worth about $1,120 per month. That's larger than any spousal benefit she could collect on her ex-husband, which would be worth just 32.5% of his full retirement age benefit — about $747 — if she filed for Social Security at the earliest age of 62.

And even though claiming Social Security at 62 would permanently reduce her retirement benefits, it would have no impact on her survivor benefit if she waited until her full retirement age of 67 to claim it. At that point, she would receive her late husband’s benefit of about $2,300 per month — plus any intervening cost-of-living adjustments since he died — for the rest of her life.

The key is to maximizing Social Security benefits in this case is to delay claiming the bigger survivor benefit until it's worth the maximum amount at full retirement age, and to collect the smaller retirement benefit as soon as it becomes available.

(Questions about new Social Security rules? Find the answers in Mary Beth Franklin’s new 2022 ebook at Maximizing Social Security Benefits)