About 6 million people get Social Security survivor benefits, but figuring out the best way to incorporate them into a retirement plan can be daunting.
In fact, the Social Security Administration doesn’t allow online applications for such benefits, and in brochures, it reminds widows and widowers that benefits depend on individual cases, and that they should talk over options with an administration field officer in person.
So what makes them so complex, and are there some general rules to be aware of before claiming benefits?
For starters, benefits can be affected by whether the worker died before reaching retirement age or collecting benefits, whether the surviving spouse qualifies for benefits on his or her own work record and whether he or she will remarry.
Someone’s individual tax situation could also affect the claiming strategy.
Generally, though, it’s important for younger widows and widowers to understand that they could lose their survivor benefits if they remarry before age 60, said Martin Allenbaugh, a senior marketer and financial planner with T.Rowe Price.
One example: A 74-year-old reader who has been widowed twice wrote to this column asking if she is entitled to higher Social Security benefits based on her first marriage, which lasted 15 years.
That husband earned much more than her second husband.
She didn’t say when she remarried, but if it was before age 60, then her widow’s benefit is based only on the later marriage, and there’s no way to go back and ask for a switch.
As for benefit-claiming strategies, Allenbaugh said, it’s also important to know that if a widowed person doesn’t qualify for benefits on his or her own work record, then there is no advantage to delaying claiming benefits beyond full retirement age.
“You are penalized if you apply for benefits early, but there’s no benefit to delay,” he said.
Widows and widowers do have a claiming option that’s unavailable to spouses, though, Allenbaugh said. If widows or widowers qualify for retirement benefits on their own work record, he said, they can claim reduced survivor benefits at age 60, then switch over to their own benefits at age 70, having earned delayed retirement credits on their benefits.
Other claimants who begin benefits before their full retirement age don’t get to choose between benefits.
At least one online calculator, maximizemysocialsecurity.com, handles survivor benefit options for a $40 fee.
“This decision has to be made extremely carefully” in order to make sure an optimal benefit-claiming strategy won’t be undone, for example, by the Social Security earnings test, said Laurence Kotlikoff, a Boston University economics professor who founded the online calculator.
Kotlikoff also points out that quirks in the way the Social Security Administration calculates benefits for widows and widowers means that those survivors, particularly younger ones, may be better off maximizing those benefits at full retirement age rather than maximizing benefits based on their own work record.
That’s because the administration uses a different formula for calculating benefits for a widow or widower when a worker dies before age 62.
This calculation, known as “windexing,” should be kept in mind as you choose which claiming strategy is right for you, he said.
Be aware that claiming a widow’s or widower’s benefit before reaching certain ages can substantially reduce your long-term benefit potential, just as it does with a worker’s own benefit or a spousal benefit.
“The harshest penalty of all is when a worker files for benefits at 62 and dies not long after that, and then his survivor (a couple of years younger) applies at age 60,” Allenbaugh said. “It’s a 41 percent reduction.”
Finally, factor your claiming strategy into your overall retirement income plan.
You may maximize your lifetime Social Security benefits by delaying a claim to age 70, but if that means having to take very large withdrawals from your retirement nest egg during a bear market, for example, the risk may not be worth it.