Survivorship Planning 101

Over the past month I’ve had several clients inquire about claiming options and strategies as it relates to survivorship benefits.

Case #1

Mary age 60 recent widow, her PIA (check at Full Retirement age) is $2,000 and her deceased husbands PIA was $3,000.  The folks at SSA recommended that she claim Survivorship benefits at age 60.  This issue has come up numerous times over the past several years and is so wrong in so many ways!  By claiming survivorship benefits now Mary will be subjected to reduced benefits for the rest of her life!  If she does as was recommended by SSA her check will be $2,166/mo. for the rest of her life except for annual COLA adjustments.  In order to receive 100% her survivorship benefits she will have to wait until she reaches her FRA which is age 67.  A far better option is for Mary to wait until age 62 and then claim benefits on her own record which would be $1,408 and then wait until her FRA and then claim survivorship benefits of $3,446/mo. assuming a 2% COLA at 67.  You’ll notice that is a $1,300/mo. difference or $15,600 more per year by delaying survivorship benefits until FRA.  The breakeven is age 75 between claiming survivorship benefits now vs. waiting until FRA!

NOTE:  If Mary continues working and claims benefits immediately, she will be subjected to the Earnings Test (lose $1 for every $2 she earns in excess of $18,960 each year until she reaches her FRA.  So in this case I’d recommend that she continue working for at least 2 more years and then claim benefits on her own record when she turns 62.  Side note:  Since she is now over age 60 she can remarry if so inclined and not lose survivorship benefits!!!!

Case #2

John is 65 and his wife Kathy is 57 both are high earners, own their own business and hope to continue working for another 5 years.  However due to a recent health issue, John’s life expectancy could be dramatically reduced.  Their question to me is what is the best course of action?

My advice is that John claim benefits on his own record immediately and receive $2450/mo.  However, since John is not at FRA (66 & 4 months) and won’t be until August 2022 he would be subject to the Earnings Test of lose $1 for every $2 he earns above $18,960 this year, but in January 2022 the year he reaches his FRA the Earnings Test changes to losing $1 for every $3 he earns above $50,520.  The key is since they own their own business, John could easily reduce his own earnings to stay below the Earnings Test floor and have those additional earnings go to Kathy.

Should John die prior to Kathy reaching age 70, she would then claim survivorship benefits (whatever John was receiving at the time of death) as long as she is 67 (see above regarding Earnings Test) while continuing to postpone her own benefits until age 70 which are projected to be $4,100/mo.

NOTE:  I call this my Drag Chips or Hedging Strategy.  Anytime you have 2 high earners or one spouse several years older than the other, one has to realize that if one spouse dies the surviving spouse receives the greater of the 2 strategies, but not both.  I most always recommend that the higher earning spouse delay benefits until age 70 and have the younger or lower earning spouse claim at FRA or earlier based upon work status, health issues and family life expectancy.  Granted if both spouses live into their late 80’s or 90’s it might have made more sense to have them both delay claiming until age 70!

“If you tell me your check out date, I’ll tell you when to claim!”

There was a line from a movie I saw years ago that said something to the extent “we were playing checkers, while he was playing chess!”  All options should and must be explored prior to claiming!

I trust you had a great summer and never hesitate reaching out, if you think I can be of assistance.

Have a great month,

Dave Zander, CFP®
MLS# 1603774