I’m always surprised to see how even the most conscientious savers and planners — those with estate plans and buttoned-up beneficiary designations — fail to see how Social Security survivor benefits can influence their financial legacy. In other words, they make decisions about their own Social Security benefits without understanding the long-term effect it may have on their family members.
The fact is, survivor benefits are a powerful component of the Social Security program. I say powerful because they represent the opportunity for your benefits to continue paying even after your death.
Indeed, your surviving family members can collect Social Security benefits based on your earnings history. And unlike spousal benefits, which I talked about in my previous post, the size of the survivor benefits you leave behind changes depending on when you opt to collect your individual benefits.
So, if you decide you want to take your individual benefits at the earliest possibility (currently age 62), know that you are locking in lower lifetime income not only for yourself, but for your spouse should you predecease him/her. At the opposite extreme, should you choose to delay receiving benefits, thereby earning a higher monthly check from the government, that higher amount is eligible to pass on to your surviving spouse.
Let’s look at a hypothetical couple, John (the higher earner) and Jane. If John made the decision to collect reduced Social Security benefits at age 62 vs. his highest possible benefit at age 70, he would be leaving Jane with $1,100 less per month for the duration of her life, as shown here:
While anecdotally interesting, this is all the more meaningful when you consider that over 50% of women collecting Social Security today are receiving part or all of their benefit based on their husband’s earning history and the decisions made around it.
So, if you are the higher earner in your relationship, and your inclination is to jump on your Social Security benefits asap (whether because you don’t think longevity is on your side or because you want to collect for as long as possible), consider what that might mean for the financial future of your survivor(s). While it’s not the only consideration in determining when to collect, it is an important one.
Survivor Points to Remember
- You may be entitled to survivor benefits if you have been married at least nine months at the time of your spouse’s death.
- The amount of your survivor benefits depends on when your spouse began taking his/her benefits.
- The survivor benefits, if higher than other benefits you are already receiving (individual or spousal), will replace those benefits.
- You can collect survivor benefits as young as age 60, but if you do, those benefits will be reduced.
- Children and parents also may be eligible for survivor benefits, but only under specific circumstances. Read more here.
- If you receive a pension based on work for which you did not pay into Social Security, your survivor benefit may be adjusted downward to account for that. This is known as the Government Pension Offset.
If nothing else, remember this: For couples, Social Security should be a joint life decision, not a single life decision.
For more on survivor benefits, check out the SSA’s Survivors’ Planner or BlackRock’s brochure, Understanding Social Security Retirement Benefits. And rest assured, I have more to say. Stay tuned for my next installment on Social Security, followed by other retirement-related insight.
Sources: BlackRock; Social Security Administration. Please see the Social Security Administration’s website at www.ssa.gov for more information, restrictions and limitations about Social Security benefits.
Rob Kron, Managing Director, is the head of Investment and Retirement Education for BlackRock’s U.S. Wealth Advisory group. He is the newest contributor to The Blog and provides practical information on topics that are important to every saver and investor of every age. You can find more from Rob here.