When one spouse dies, the surviving spouse will inherit the deceased partner's Social Security payout (as a survivors benefit) if it's larger than his or her own retirement benefit.
Eligibility for retired-worker benefits and spousal benefits begins at age 62, but eligibility for survivors benefits begins at age 60.
Married couples should carefully consider when they start Social Security, because one spouse’s claiming age could have a substantial impact on the other spouse’s survivors benefit.
Married couples need to understand retirement benefits and survivors benefits.
Social Security benefits are the major source of income for most people over age 65, according to the Social Security Administration. That means living standards in later life can depend heavily on how well retired workers and spouses understand the program.
Unfortunately, misunderstandings are all too common. A recent survey from Nationwide Retirement Institute found that 44% of adults were unaware that, upon the death of a spouse, the surviving spouse would inherit the bigger Social Security benefit.
Read on to learn the difference between retirement benefits and survivors benefits.
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Social Security old-age and survivor benefits is a broad term that includes two subcategories: retired-worker benefits, and benefits for spouses and other family members. They share certain things in common. For instance, eligibility begins at age 62 in both cases. But there are important differences married couples should understand.
Here is a brief overview of how Social Security benefits generally are determined:
In situations where both spouses work -- meaning both spouses are eligible for retired-worker benefits on their own record and spousal benefits on their partner's record -- each spouse will automatically be awarded the higher benefit when applying for Social Security.
The upshot is that married couples generally receive two revenue streams from Social Security. In some cases, that means two retired-worker benefits. In other cases, it means one retired-worker benefit and one spousal benefit. Regardless, when one spouse dies, one of those revenue streams disappears. But the surviving spouse can generally then receive the higher of the two payouts as the survivors benefit.
When a married person dies while receiving Social Security retirement benefits, the surviving spouse is eligible for survivors benefits if he or she satisfies certain conditions. The most common qualifications are as follows:
The Social Security Administration must be notified when a beneficiary dies. In most cases, the funeral home will handle the reporting, but the surviving spouse can also report the event by contacting the local Social Security office. Once that's done, the surviving spouse can begin receiving a survivors benefit in place of his or her current benefit.
Specifically, spouses who receive benefits as a spouse will automatically have their payout switched to the survivors benefit because it will always be larger. Alternatively, spouses who receive benefits as a retired worker can apply for survivors benefits if the new payout would be larger than their current payout.
The survivors benefit will equal 100% of the deceased partner's Social Security benefit if the surviving spouse has reached FRA. But the survivors benefit will be reduced by a predetermined percentage if the surviving spouse has not reached FRA. The precise reduction depends on how many months early survivors benefits start. The largest reduction is 28.5%.
Married couples should carefully consider when they start Social Security. One person's claiming age could have a substantial impact on the other person's survivors benefit. For instance, if the spouse with the higher income also has a shorter life expectancy, that person should consider delaying Social Security until age 70. Doing so would maximize the person's retired-worker benefit in the present, and it would maximize the spouse's survivors benefit in the future.
Alternatively, widows and widowers should carefully consider which type of Social Security they claim first. For instance, a 62-year-old widow eligible for survivors benefits and retired-worker benefits may find it advantageous to start with survivors benefits. That strategy would allow their retired-worker benefit to earn delayed retirement credits, meaning it would increase by two-thirds of 1% per month, or 8% per year, until they reach age 70. At that point, they could switch from survivors benefits to retired-worker benefits if the latter payout was larger.
Ultimately, determining the right age to claim Social Security is a complicated decision best made with help from a financial advisor. If that's not a viable option, married couples and widows and widowers should at least consult a Social Security strategy calculator like Open Social Security. In either case, it's important to understand retirement benefits and survivors benefits.
