I’ve written often about the value of delaying Social Security payments until age 70.
You accumulate what the U.S. Social Security Administration calls “delayed credits” by waiting past your full retirement age – effectively purchasing an inflation-adjusted immediate annuity paying 8 percent. You won’t find a better annuity anywhere on the planet in today’s low-interest environment. And you even have the capability of filing and suspending, which delays your benefits but allows you to undo that delay should your life expectancy or other circumstances change.
Still not convinced? Well, if you are a married couple, another valuable Social Security feature is survivor’s insurance.
Barring an accident that takes the lives of both you and your spouse simultaneously, one of you is almost certainly going to survive the other. If your spouse has a higher Social Security payment than you and dies first, you become entitled to his or her higher benefit.
The three factors that determine how much you’ll get are the age at which your spouse died, the age at which he or she originally filed for Social Security benefits and the age at which you begin taking your survivor’s benefit.
Scenarios
Here are some examples to illustrate how it works. First, some assumptions:
• John and Mary are both baby boomers, which means at age 66 they each reach their full retirement age, the age at which they are each entitled to their full Social Security benefits.
• John is four years older than Mary.
• John’s full retirement-age benefit is $2,000 per month.
In the first example, suppose John filed early (at age 62), when Mary was age 58, and died two years later. Mary starts her survivor benefit at age 60 (the earliest age possible except in case of disability or if you’re caring for minor children). In this case Mary’s survivor’s benefit would have been 71.5 percent (because she filed early) of 75 percent (because John filed early) of John’s full retirement-age benefit.
However, the Social Security Administration provides an additional guarantee that a survivor’s benefit will never be less than 82.5 percent of his or her spouse’s benefit. Therefore, in this case, Mary’s survivor benefit would be 71.5 percent of 82.5 percent (the minimum guaranteed benefit), or $1,180 per month.
If Mary had waited to collect her survivor’s benefit beginning at age 66, she would have gotten the unreduced 82.5 percent of John’s full retirement-age benefit, or $1,650 per month. And if John had not filed for his Social Security benefit early, before dying, at age 66 Mary would have gotten the full $2,000 per month.
It gets even better if John manages to hang on until age 70. Suppose he died that year without having filed, or having filed and suspended when he was 66. In that case, Mary – who has now reached her own full retirement age at 66 – would be entitled to 132 percent of John’s benefit, or $2,640 per month.
Remember also that all these monthly payments will grow with inflation, so if both John and Mary had decided to wait before triggering their Social Security benefits, Mary would be the beneficiary of some significantly fatter checks during her later years.
You can also get survivor benefits from an ex-spouse if you were married for at least 10 years and you are currently unmarried (or did not marry your current spouse until after age 60). And it doesn’t matter how many other spouses your ex-spouse has gone through!
There are numerous strategies you can use to maximize your combined Social Security benefits when both spouses have earned benefits, as I have written before. Survivor’s insurance adds further support to the argument for delaying benefits to maximize overall returns.
Los Altos resident Artie Green is a Certified Financial Planner and principal at Cognizant Wealth Advisors. For more information, call 209-4062 or email [email protected].
