Understanding The Social Security Spousal Survivor Benefit

Summary

• Social Security benefits require making choices.
• Social Security provides benefits to retiree families during life and death.
• The Survivorship Benefit is probably the least well understood Social Security benefit.

Knowing what the Social Security benefits will be for a married couple, in life as well as in death, are important in financial planning for the household. One of the least well understood benefits is for the surviving spouse. Survivorship benefits are also available for dependent children under age 18 (19 if still in high school), dependent parents and the surviving spouse of any age who is the parent of a child under age 16. However, this article will only consider a married couple. So what are the rules and options? First, let me define some key terms that may not be familiar to all.

Primary Insurance Amount, or PIA. This is the computed monthly benefit one receives if they begin receiving their benefit the month they attain their Full Retirement Age (FRA). The amount is based on their own work history. Beginning their SS benefit prior to FRA will reduce their benefit while waiting past ones FRA will increase their benefit above their PIA.

Full Retirement Age or FRA. There are actually two FRAs: one for the Worker and another for the Survivor. The worker’s FRA is the age one will receive their PIA as their benefit. The Survivor FRA is the age they will receive 100% of the deceased spouse benefit. These two FRAs can be slightly different based on year of birth. Below is a table comparing the two

Delayed Retirement Credits or DRCs. If the worker delays beginning Social Security benefits past their FRA, the PIA will increase at the rate of 8% per year or .67% per month. DRCs continue after the FRA until one reaches age 70 and then they stop. Note that DRC’s are for the calculation of benefits while living. Survivor benefits do not accrue DRCs.

Earnings Limit Penalty. For those who continue to work, SS will reduce any benefit received prior to FRA by $1 for every $2 their earnings from employment exceeds $1,470/month (2019). This penalty is reduced to $1 penalty for every $3 in employment earnings over $3,910/month in the months of the year they attain their FRA. At FRA and above, there is no Earnings Limit Penalty. This applies to both worker’s and survivors benefits.

Now, let’s look at some spouse survivorship situations:

Scenario #1. Neither spouse has started benefits when one spouse dies. The surviving spouse may begin a survivor benefit as early as age 60 if not remarried (age 50 if fully disabled) But if the surviving spouse begins the survivor benefit prior to their survivor’s FRA, the survivor benefit will be reduced fractionally for each month the surviving spouse begins prior to their FRA, up to a maximum 28.5% reduction, or 71.5% of the deceased spouse’ PIA if the surviving spouse starts the survivor benefit at age 60. The reduction rate for those beginning the benefit prior to FRA of 66 years 0 months is close to 2/5% per month.

Example: H&W have been married 25 years when H dies at age 59. The SS Administration determined H would have a PIA of $2,000 per month on the date he died. W, the surviving spouse, is also age 59 and elects to begin the survivor’s benefit at age 60. The survivor FRA benefit will be reduced 28.5% to $1,430 per month, which would be 6 years or 72 months prior to survivor FRA. Now, while collecting the reduced survivor benefit W’s own benefit will continue to grow to include DRC’s up to age 70, which is what W plans on doing. An alternative is for W to wait to age 62, begin her own benefit and let the survivor benefit grow from the reduced amount up to its full benefit at the W’s survivor FRA and then switch, or to switch at any point in between. As an example, with a PIA of $2,000/month and the survivor FRA of 66 years 0 months, beginning the survivor benefit 10 months prior to survivor FRA will be a reduction of 10 X 2/5 = 20/5 = 4% reduction, or 96% of PIA = .96 X 2,000 = $1,920/mo (approximately). The switch may be done once. The timing of it is completely up to the surviving spouse as SS will not automatically notify the survivor of this option.

Scenario #2. Same as Scenario #1 except they are both age 65 and W had already begun her own SS benefit at age 62 of $1,200/month while H had not yet begun his benefit when he died. Again, H’s PIA is calculated by SS Administration, which has increased to $2,300/month at FRA. Had H died after his FRA, the benefit he would have received had he begun it on the date of death, to include DRCs, would be the benefit W would be eligible to receive at her survivor FRA. The survivor can switch to the survivor benefit if it is greater than their own, but if they begin the survivor benefit before their own FRA, the survivor benefit will be reduced for each month the survivor begins prior to their FRA. As mentioned earlier, unlike the surviving spouses own benefit, the survivorship benefit does not accrue DRCs between the survivor’s FRA and age 70, although it will receive any annual cost of living increases.

Scenario #3. Same situation, but H had already began to receive his own benefit while W had not yet began her benefit. W, the surviving spouse, may begin the survivor benefit as early as age 60 (if not remarried), which will be based on the deceased spouse BENEFIT (not PIA) at death, but will be reduced for each month W begins the benefit prior to her survivor’s FRA. If W as the surviving spouse, waits to begin the survivor benefit at her own Survivor FRA, W, the survivor, will receive 100% of H's benefit he was receiving when he died, but will not get DRCs for delaying beginning the survivor benefit past the Survivor FRA. W may begin her own benefit as early as age 62 or older and later switch to survivor benefit if/when the survivor benefit has gotten bigger than W's own benefit. H’s benefit he was receiving when he died may have been calculated based on beginning his benefit early, beginning at FRA or beginning past FRA thus including DRCs...it doesn't matter. The benefit H was getting at the time of his death is the amount the surviving spouse will get at their own survivor’s FRA or later.

However, please note: There is a special “ Widow’s Benefit” when the deceased spouse began their benefit prior to their FRA. Here, the surviving spouse will receive, at their own FRA, the greater of the actual benefit the deceased spouse was receiving or 82.5% of the deceased spouse’s PIA (not benefit).

Scenario #4. Both spouses had begun their own benefits when the spouse died. Here, the decision is usually easy as the couple are usually older. If the surviving spouse is at least FRA, then the surviving spouse will simply take the greater of their own or their deceased spouse’ benefit. If not to their FRA, the surviving spouse may then either continue their own benefit and delay the survivor benefit thus allowing it to grow (actually, to be ‘less reduced’ each month the survivor waits) up to the survivor’s FRA and then switch to the survivor benefit which will be the deceased spouse benefit they were receiving at death, or switch over any time they wish if the survivor benefit is greater than their own. If the surviving spouse elects to switch to survivor benefit, the full survivor benefit will be reduced by a percentage per month for each month the survivor begins it prior to the survivor's FRA. But the surviving spouse may not discontinue their own benefit, start the survivorship benefit and then allow their own benefit to grow up to its PIA and then accrue DRC's between FRA and age 70...unless...the survivor has been receiving their own benefit less than 12 months, which allows them to stop their benefit and pay the benefits received back to SS. SS will treat this situation as though the surviving spouse had not ever begun their own benefit.

Former Spouses. For former spouses that were married at least 10 years and divorced at least 2 years and the divorced spouse has not remarried or did remarry but has since divorced the second spouse, if that former spouse dies, even if the former spouse had since remarried, the surviving unremarried former spouse may go through the same survivor benefit options as above. The survivorship benefit from a former deceased spouse will have no impact at all on the former spouse’s then current spouse. As long as the divorced surviving spouse is not remarried at age 60, the survivor benefit from divorced spouse will be a benefit option.

Finally, a word about spouses, surviving spouses and remarriage.

As mentioned, the surviving spouse will have the survivorship option as early as age 60 if he/she is not remarried. If the surviving spouse does remarry after age 60, then the normal spousal benefit rules (not discussed here) will apply with the new spouse after having been married at least one year and spousal survivorship rules will apply after being married 9 months. If the couple has a child together, these waiting periods are waived. If the surviving spouse is remarried at age 60, the new spouse replaces the former spouse in determining spousal benefits. But if the second marriage ends in divorce prior to age 60 and lasted fewer than 10 years, Social Security will treat the surviving spouse as though the second marriage had not occurred.

An important note: the survivorship benefit cannot be done on-line. The survivor must actually visit a local Social Security office to initiate it.

As can be seen, survivorship benefits can be a complicated space. So it helps to have at least a fundamental understanding of how the survivorship benefit works in planning on when each spouse should begin their own benefit. Hopefully this has helped in your understanding.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.