Social Security Considerations: Spousal and Survivor Benefits

Posted by Aaron Leatherwood, CPA, CFP®, CWS®, MS | November 22, 2019

Now that we have discussed Social Security Break-Even Analysis and Portfolio Withdrawals, let's explore how spousal and survivor benefits impact the analysis.

 

A worker can be eligible for benefits based on their work history or their spouse’s and can receive the higher of the two benefits. The starting point for determining the spousal benefit is 50% of the primary insurance amount (or full retirement benefit) of the other spouse. For example, let's take a hypothetical couple, John and Jane. If Jane's benefit is $2,000 per month at full retirement age, then the starting point for determining John's spousal benefit is 50% of $2,000. John's spousal benefit would then be $1,000 per month if he waited to receive benefits until his full retirement age. John could potentially claim his spousal benefit sooner, as early as age 62, but the spousal benefit would be reduced. A couple of things to know about the spousal benefit is that it does not receive delayed retirement credits, and it is only available if the other spouse has filed for benefits. So, John's spousal benefit would not increase by him delaying benefits past full retirement age, and he would only be eligible to receive spousal benefits if Jane has already filed.

 

Strategies for married couples used to be complex, but those have been phased-out for anyone born on or after January 2, 1954. However, there are still some strategies to consider. It is important to take a look at the worker's benefit and age, the spouse's benefit and age, and how that impacts breakeven calculations and portfolio withdrawals. If Jane is four years older than John, then it might be optimal for Jane to claim at age 70 and maximize delayed retirement credits for her benefit and John to claim at age 66, his full retirement age, and maximize his spousal benefit (since he doesn't earn delayed retirement credits). However, if Jane was four years younger, and they need to make large withdrawals from their portfolio, then it might make sense for Jane to claim at age 62 to free up the spousal benefit for John to claim at age 66.

 

Another caveat to consider would be if John has a benefit based on his work history and a higher spousal benefit. For example, he might be eligible to receive a $650 benefit at age 62 based on his work history. In this case, he might claim that benefit at age 62, then at a later point in time, when Jane files for her benefit, change his benefit to the higher spousal benefit. Again, the impact on portfolio withdrawals should always be considered.

 

Lastly, let's discuss the survivor benefit. Essentially, the benefit is paid to the surviving spouse if the benefit is higher than what they are receiving for their work history. Continuing with our example of John and Jane, assuming Jane is receiving $2,000 per month and John is receiving $1,000 per month, if Jane were to predecease John, then John's benefit would increase to $2,000 per month. However, if John were to predecease Jane, then Jane's benefit would remain unchanged at $2,000 per month. Because of this, health, family history, and the ages of the married couple are all factors to think about. Say Jane is ten years older, in poor health, and doesn't have a family history of longevity, then it is more likely that John will receive the higher survivor benefit over a more extended period of time. On the other hand, if Jane is younger, in good health, and has a history of longevity, then maximizing the survivor benefit is less of a factor.

 

Next up in this series, we will cover Limitation and finally Putting It All Together. As always, we are here to be a resource for you. If you have any questions and want to discuss this topic further, please give us a call.

 


 

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Topics: Planning