Claiming Social Security early has lasting impact on survivors

I received an urgent email from a financial adviser this week asking whether his terminally ill client should file immediately for Social Security so he wouldn’t miss out on claiming his benefits before he died.

While that may seem like a logical instinct, such a move could result in lower lifetime benefits for a surviving spouse. There are several things to consider in such a scenario, including the client’s medical prognosis and the ages of both spouses.

In this case, the dying husband is 57 and his wife is 62. The adviser asked if the wife could claim spousal benefits before her husband passed away.

That would be impossible because the husband is too young to claim Social Security retirement benefits and his wife can’t collect on his earnings record until he claims his benefit (assuming her benefits as a spouse were larger than on her own earnings record).

Next, the adviser asked if his client should file for Social Security disability benefits. Unlike retirement benefits, which are available as early as age 62 and are permanently reduced by 25% or more if claimed before full retirement age, disability benefits are not reduced and are awarded on a case-by-case basis.

But applying for Social Security disability benefits can be a lengthy process and, even if approved, there is a five-month waiting period from the onset of a disability before benefits can be awarded. As Social Security expert Andy Landis noted in the 2018 edition of his book “Social Security: The Inside Story” (CreateSpace, 2018), “If you recover or die within the five months, no disability payments are due, even as back pay, either to you or your survivors.”

Although the average processing time for initial disability claims has held steady at about three to four months, many initial applications are denied. The next step in the appeals process is to appear before an administrative law judge who decides the case. Currently, over one million individuals are caught in this backlog and each wait over 600 days, on average, for a decision. Some applicants die before they can appeal their claim.

But once the client dies, his widow would be eligible for survivor benefits. The amount she would receive depends on whether her husband claimed benefits before he died and her age when she files for survivor benefits.

In general, survivor benefits are worth up to 100% of what the deceased worker was receiving or entitled to receive at the time of death. So, if the worker collected a reduced retirement benefit early, his widow also would receive a reduced survivor benefit. In most cases, a survivor benefit cannot exceed what the worker would be receiving if alive.

But there is an exception called the widow’s limit provision that allows the surviving spouse (or surviving ex-spouse who had been married at least 10 years) to collect the larger of what the deceased worker was receiving or 82.5% of his full retirement age (FRA) benefit amount. So, if a worker claimed benefits at 62, worth 75% of his FRA amount and later died, his widow would be entitled to up to 82.5% of his FRA amount, depending on her age at the time of the claim.

However, if a worker died before claiming Social Security, his widow would be entitled to up to 100% of his FRA amount if he died before 66, or his FRA amount plus any delayed retirement credits (worth 8% per year up to age 70) if he died after age 66.

Survivor benefits are available as early as age 60 (50 in the case of a disabled widow or widower), but are worth just 71.5% of the deceased worker’s FRA amount compared to 100% if the surviving spouse claims benefits at her FRA or later. Survivor benefits do not qualify for delayed retirement credits, so they do not grow larger if collected after FRA.

Surviving spouses who also are entitled to retirement benefits on their own earnings record can claim one type of benefit first and switch to the other later if it would result in a larger amount.

For example, someone with a smaller retirement benefit may want to collect a reduced retirement benefit first and switch to maximum survivor benefits at full retirement age. But someone with a large retirement benefit of their own may want to claim survivor benefits first and claim their maximum retirement benefits at age 70.

The rules are complicated, and it is essential that financial advisers help clients with this crucial survivor benefits claiming decision. Especially because, unfortunately, the Social Security Administration doesn’t always get it right. A recent internal SSA investigation found that in a random sample of cases where surviving spouses were entitled to both survivor benefits and their own retirement benefits, SSA employees gave the wrong advice in 82% of the cases.

For more information about the many intricacies of Social Security survivor benefits, visit this SSA webpage.