Planning for retirement is a complicated process, and understanding how Social Security works certainly can add to the complications.
Let's look at one of the issues that affect many Americans daily, Survivor Benefits. Someone who was married to an individual covered under the Social Security system that is now deceased has a few options not available to living spouses or other people within the Social Security system. They can either claim their retirement benefit, or take a widow benefit. They can even take one and afterward switch over to the other later. It's best to be aware of the unique rules surrounding Social Security widow(er) benefits so feel welcome to contact us to avoid making costly claiming mistakes.
Widow(er) Benefit Basics
People who qualify can take a widow(er) benefit as early as age 60. If they claim early, they will receive a 28.5% reduction at age 60. It's pro-rated for each month between age 60 and the month they reach their widow(er) full retirement age. It's important to note that the widow(er) full retirement age can be different from the full retirement age for their retirement benefit. They can claim their own Social Security retirement benefit as soon as age 62. If they claim survivor benefits early, they are subject to the earnings test, and their benefits will also be reduced based on their full retirement age (FRA).
Claiming Strategies for Survivors
For most widow(er)s, the best tactic is to take one benefit as early as possible then switch to a larger benefit later. You can either start with retirement benefits and switch to widow(er) benefits or start with widow(er) benefits and switch to retirement benefits. You can claim retirement benefits as early as age 62. Still, you should switch over to the widow(er) benefit no later than your FRA, because widow benefits do not get delayed retirement credits. Alternatively, if someone starts with a widow benefit because their eventual Social Security benefit on their own earnings record will be larger, start the widow(er) benefit as soon as possible at age 60. Wait until age 70 to switch over to the retirement benefit.
The Earnings Test
One part of this type of planning that is often overlooked is the earnings test. You can have up to about $17,000 before you start to experience the earnings test. The earnings test reduces your Social Security benefit by $1 for every $2 you earn over the threshold. That penalty is not dollar for dollar and doesn't start until you reach the threshold. So, in many cases, it can make sense for a widow(er) to switch to part-time work and have the remainder of their salary made up by a survivor benefit. You may be able to retire and transition to a part-time job, where maybe you're making say $30,000 a year with the potential to supplement that with a $15,000 widow(er) benefit and some portfolio withdrawals.
There's more to learn, so feel welcome to contact us with questions, for more information on Claiming Strategies for Survivors.
This information is for educational purposes only and should not be considered specific tax, legal, investment of planning advice, which will only be provided on a personalized basis. Please consult your tax and legal advisors regarding your individual situation.