One of the primary tenets of financial planning is to anticipate a worst-case scenario and to implement a strategy to buffer the risk. For many families, the untimely death of a parent or spouse can spell financial disaster.
While Social Security survivor benefits alone may not be sufficient to support surviving spouses and children during difficult times, they can play a crucial role in maintaining financial stability. Based on recent emails, many financial advisers are attempting to include Social Security survivor benefits in their "what if" scenarios, prompting questions about how to estimate the amount of those benefits.
One adviser from Dallas posed questions about his clients, a married couple where the husband is 62 and the wife is 60. They both plan to delay claiming Social Security retirement benefits until they turn 70, but the adviser wondered what would happen if the husband, who has a slightly larger full retirement age benefit than his wife, died before claiming Social Security. "If Tom died today, when could Brenda begin to receive his Social Security survivor benefit?"
Survivor benefits are based on the earnings of the person who died and the age of the surviving spouse when she claims benefits. The maximum survivor's benefit is limited to what the worker would receive if he were still alive.
A widow or widower who is full retirement age or older would receive 100% of the deceased worker's benefit amount. Survivor benefits are available as early as age 60, but they would be worth just 71.5% of the deceased worker's basic amount and gradually increase for survivors who claim benefits between 60 and full retirement age. A disabled widow or widower aged 50 through 59 would be eligible for 71.5% of the deceased worker's benefit.
If the person who died was receiving reduced benefits, the Social Security Administration bases the survivor benefits on that lower amount. However, there is an exception to this rule. A surviving spouse who is full retirement age or older at time of claim is entitled to the higher of what the deceased worker was collecting, or 82.5% of the worker's full retirement age benefit amount.
If a person receives widow's or widower's benefits, and will qualify for a retirement benefit that is more than their survivor's benefit, they can switch to their own retirement benefit as early as age 62 or as late as age 70. But survivor benefits do not increase if claimed after full retirement age the way retirement benefits do. So, in some cases, it may make sense to collect survivor benefits first and allow one's own retirement benefits to continue to grow by 8% per year up until age 70 and then switch to their maximum retirement benefit.
A spouse who is already receiving spousal benefits will automatically step up to a larger survivor benefit at the time of the other spouse's death. The same rules and benefit percentages apply to surviving divorced spouses, assuming they were married at least 10 years to the deceased worker.
Survivor benefits are not just for the spouse that remains behind. They are also available to the deceased worker's minor dependent children under age 18 (or 19 if still in high school) or permanently disabled adult children. Children are entitled to 75% of the deceased parent's benefits. A caregiving parent of a child under age 16 or of a permanently disabled child, is also eligible for a benefit worth 75% of the deceased worker's benefit, regardless of the surviving spouse's age.
But there is a limit to the amount that family members can receive each month. The limit varies, but it is generally equal to about 150% to 180% of the deceased worker's basic benefit rate. If the sum of the benefits payable to family members is greater than this limit, the benefits will be reduced proportionately. (Any benefits paid to a surviving divorced spouse based on disability or age won't count toward this maximum amount.)
There are also limits to how much a survivor can earn. Anyone who collects any type of Social Security benefits — including survivor benefits — before full retirement age is subject to earnings restrictions. In 2017, they would lose $1 in benefits for every $2 earned over $16,920. Earnings restrictions disappear at full retirement age.
Surviving spouses who remarry before age 60 (age 50 if disabled) cannot receive benefits as a surviving spouse unless the subsequent marriage ends. But survivors who wait until age 60 or later for their next trip down the aisle can continue to qualify for benefits on their deceased spouse's Social Security record.
The best way for advisers to get an accurate estimate of potential survivor benefits is to ask the client to bring in their latest Social Security benefits statement, which will include information about potential survivor benefits. Clients can get a personalized estimate by setting up an online account at Ssa.gov/myaccount, or click here for a complete guide to Social Security rules for survivors.
(Questions about Social Security? Find the answers in .)
Mary Beth Franklin is a contributing editor to arjuna-design and a certified financial planner.