Almost every day I read another new study about the impact of increased longevity on financial planning. But last week I experienced a stark reminder about the perils of dying too soon.
One of my dear friends died Aug. 15 at age 61, two months after she was diagnosed with lung cancer. It was a shock to our close-knit circle of friends whom I
wrote about last year. It turns out that my friend will never have to worry about outliving her savings nor will she ever have the chance to collect her first Social Security check. And because she was a widow, there is no one to claim her survivor's benefit.
Based on recent emails from readers, it seems that sudden deaths are not all that rare. They raised some interesting questions about Social Security survivor benefits.
Craig Steinhauer, a financial adviser with NWF Advisory Group in Los Angeles, wrote to me about his client, a 58-year-old widow. Her husband died two years ago at age 58. He owned a business, which his wife now runs and where their two adult children also work.
“Is she entitled to survivor benefits at this time?” Mr. Steinhauer asked.
“Unfortunately, the widow is not eligible for survivor benefits until age 60,” I responded. At that point, her survivor benefits would be worth 71.5% of her late husband's full retirement age benefit amount. However, she would be subject to earnings restrictions if she collected any type of Social Security benefit before her full retirement age while she continued to work.
In 2016, Social Security benefits are reduced by $1 for every $2 earned over $15,720. That means if she earned more than $47,160 this year ($15,720 x 3), she would forfeit all of her benefits to the earnings cap. The earnings cap is indexed to inflation. A higher earnings cap applies in the year one reaches full retirement age and disappears at full retirement age. Any benefits lost to the earnings cap would be restored at that point.
“She may want to wait until her full retirement age of 66 and 8 months to collect her survivor benefits when they would be worth 100% of her late husband's retirement benefit and when the earnings cap no longer applies,” I told Mr. Steinhauer. In the meantime, her own retirement benefit would continue to grow by .66% per month between her full retirement age and 70. At that point, she could switch to her own maximum retirement benefit, assuming it was larger than her survivor benefit.
An adviser in Steamboat Springs, Colo., wrote to me about a client who died unexpectedly a few weeks ago at age 65 before claiming Social Security. Her widower husband, 68, claimed his benefits two years ago. The adviser asked if the husband could suspend his Social Security retirement benefits and collect his survivor benefits for two years before resuming his own at 70.
No. Because the husband's own retirement benefit was larger than his wife's benefit, his survivor benefit effectively goes to waste. If he had not yet started his own retirement benefit, he could have claimed his survivor benefit first and switched to his own maximum benefit at 70.
But under the new Social Security rules that took effect April 30, anyone who suspends his or her benefits at full retirement age or older cannot collect any Social Security benefits — including survivor benefits — during the suspension period.
Another reader asked about a client who was widowed at age 35. The widow remarried the following year but her second marriage ended in divorce. “Is she eligible for widow's benefits from her first husband?” the reader asked.
Yes, the widow is eligible for survivor benefits as early as age 60; sooner if she is caring for the deceased worker's child who is under age 16. Normally, an individual who remarries loses the right to claim survivor benefits unless that subsequent marriage ends. But there is an exception. Those who wait until 60 or older to remarry are still eligible to collect survivor benefits on a late spouse or late ex-spouse (as long as they were married at least 10 years before they divorced).
Social Security is the ultimate insurance pool. For most people, it provides retirement benefits for as long as they live and survivor benefits for a spouse or minor dependent children. But depending on the age of the surviving spouse, some may have to wait a long time to collect a benefit, and if their own retirement benefit is larger, they might never collect a survivor's benefit at all.
(Questions about new Social Security rules? Find the answers in
my new ebook.)
Mary Beth Franklin is a certified financial planner.
