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social security survivor benefits

When to File For Social Security Benefits

Jan 27th, 2012
by jblankenship.
8 comments
Four different machine filesImage via Wikipedia

All future Social Security recipients face this question at some point:  When should I file for benefits?

As you are likely aware, age 62 is the earliest that you can file for benefits.  By filing at this age, you will begin receiving your benefit at a reduced amount – perhaps as much as 30% reduced.

Waiting to file until your Full Retirement Age (FRA) will allow you to receive the full benefit amount, without reductions.  You could also wait until age 70 to file for benefits, which would result in an overall increase to your monthly benefit amount, by as much as 32% in some cases.  Granted, you will have foregone several years’ worth of payments if you wait to file at some age later than 62, but on average, it all works out about the same (with a few exceptions).

The way that these reductions and increases are designed is to ensure that, on average, all Social Security recipients, regardless of the age that they begin receiving benefits, ultimately receive roughly the same amount of benefits during their lifetimes.  This is all calculated by actuaries, and it involves the population’s average lifespan.

So if you start receiving your benefit earlier, even though it’s reduced you’re receiving it for a longer period of time than waiting until later.  On the other hand, if you delay filing until FRA or age 70, your benefit is greater each month, but you’ll be receiving it for a shorter period of time.  Eventually these strategies “cross over” – that is, one method begins to work more in your favor than another – at around age 82.

What I mean by that is that, filing earlier at the reduced rate will pay you more in overall benefits up to age 82, at which point the later filing ages will begin paying you more over your lifetime.  If you take into account the annual cost-of-living adjustments (COLAs), the break-even point is actually quite a bit lower, possibly as early as age 76.  This is due to the fact that the COLA is a percentage applied to your monthly benefit – and if your monthly benefit is reduced by filing early, your COLA adjustments will be smaller as well, and vice versa when you file later.

So if you plan to live past age 76, it most likely is in your best interest to wait until the latest point to file for your benefit.  And if you need more reasons to consider delayed application, read on.

Survivor Benefits

One additional reason that you might want to delay applying for your benefit is if you have family members that will depend upon your benefit upon your passing.  This is due to the fact that your survivors’ benefits are based upon the actual benefit that you were receiving at your death.  So, if you delayed filing for benefits and therefore received a higher benefit amount, your surviving spouse (and other family members, if eligible) will receive a higher benefit amount for the remainder of his or her life, assuming that the Survivor Benefit is greater.

This gives you another reason that delaying benefits could be the better option.  Otherwise, if your benefit is the same as or smaller than your spouse’s benefit, or if you don’t have a spouse, then it’s up to you: if you think you’ll outlive the average, it’s better to wait.  If you don’t think you’ll live that long, then start as early as you like.

* The above review doesn’t take into account a situation where you may still be working while receiving Social Security retirement benefits.  I’ll cover that in another article.

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The Social Security Survivor Benefit – Part 2

Jan 20th, 2012
by jblankenship.
2 comments
Ida May Fuller, the first recipient
Image via Wikipedia

Note: you can find the first part of this discussion of Social Security Survivor Benefits at the link.  Part 1 covered the basics of Survivor Benefits, and this article covers other considerations with the Survivor Benefit, including non-spouse survivor’s benefits and coordinating the Survivor Benefit with your own benefit.  As mentioned in the prior articles, don’t expect to fully understand these calculations and definitions in the first run-through. Check over the other articles (Part 1 here, Spouse Benefits here and especially the further explanation of Spouse Benefits here) for more information, and post questions in the comment section if they come up.

Coordinating the Survivor Benefit With Your Own Benefit

The Survivor Benefit is exclusive of the surviving spouse’s own retirement benefit.  If the surviving spouse is eligible for a retirement benefit that is greater than the Survivor Benefit, only the greater of the two will be payable.

Technically the surviving spouse can choose between the two benefits, if he or she is eligible for both at the same time.  This can work to the surviving spouse’s advantage if the Survivor Benefit was taken early. By starting the Survivor Benefit early, the Surviving Spouse could wait to take his or her retirement benefit, allowing this retirement benefit to earn the delayed retirement credits up to age 70. This generally amounts to an increase in the retirement benefit of 8% for each year delayed beyond Full Retirement Age.

Here’s an example – Dick and Jane, both age 62 with retirement benefits available when they reach Full Retirement Age of $2,000 and $1,300, respectively.  Neither of them has filed for Social Security retirement or Spousal Benefits.  Dick has recently passed away.

If we run the calculation, we find that Dick’s current-age benefit would have been 75% of his Full Retirement Age benefit of $2,000 since he would be 62 at this date.  (You can take my word for this reduction, or you could look it up on the table in the earlier article.)  Then, if Jane was to apply for Survivor Benefits at this age, her benefit would be further reduced by the early filing, a 19% reduction from the table above.

So here’s the calculation for the Survivor Benefit:  Dick’s Full Retirement Age Benefit is $2,000, reduced to 75%, or $1,500.  That amount is then reduced by the 19% reduction factor, since Jane is filing early for Survivor Benefits, to total $1,215.

Notice that Jane’s own benefit at Full Retirement Age would be greater than this reduced Survivor Benefit – but at this point, her own benefit would be 75% of $1,300, or $975.  So Jane could start taking the reduced Survivor Benefit now, and then later at Full Retirement Age she could switch over to her own retirement benefit, which would be the full $1,300 (plus Cost-of-Living Adjustments), or even later to age 70 when the delayed retirement credits would apply, making her own benefit even greater.

Non-Spouse Dependents

Survivor Benefits aren’t only for spouses.  Other dependents can be eligible for Survivor Benefits as well.  These dependents include children, grandchildren, and even parents, if they qualify.  Just like leaving a sinking boat, children first.

Children

The children of a deceased Social Security participant can be eligible for a Survivor Benefit of 75% of the participant’s Primary Insurance Amount or PIA (effectively the amount of benefit that the participant would receive at Full Retirement Age) if the child is under age 18.  As long as the child was the dependent of the deceased participant, whether his or her own son or daughter, step-child, or grandchild, and the deceased participant provided at least half of the support for the child, this Survivor Benefit is available.  The child didn’t have to live with the late parent to be eligible.

In addition, the surviving mother or father of the dependent child described above is also eligible for a Survivor Benefit at any age, equal to 75% of the Primary Insurance Amount of the deceased participant.  This benefit is available until the child or children are age 16 (no age limit if the child is disabled and entitled to benefits).  The only remaining qualification is that the surviving spouse and the deceased participant must have been married for at least 9 months (less if the death is accidental).  A divorced spouse can receive this benefit if he or she was married to the decedent for at least 10 years.

Parents

The parents of a deceased participant may be eligible for Survivor Benefits as well, if they were considered dependents of the deceased.  If the parents were receiving more than half of their support from the deceased participant and they are over age 62, they can be eligible for this benefit.

If there is only one parent surviving the participant, the Survivor Benefit is equal to 82.5% of the Primary Insurance Amount of the deceased participant.  If there are two surviving parents and both are eligible, each would receive a benefit of 75% of the Primary Insurance Amount.

This benefit is exclusive to any retirement benefit that the parents may have available to them.  If the parent is eligible for a retirement benefit that is greater than the Survivor Benefit, he or she (or both of them) may receive the Survivor benefit at age 62 (with no reduction) and then later switch over to the retirement benefit at Full Retirement Age or later.

Maximum Family Benefit

Each of these Survivor’s Benefits could be limited by a Maximum Family Benefit that each family unit must adhere to.  Essentially there is a limit prescribed by the Social Security Administration on the amount of benefits, based upon the deceased participant’s Primary Insurance Amount (a good explanation of the Primary Insurance Amount and Full Retirement Age can be found by clicking this link).  The Maximum Family Benefit ranges between 150% and 180% of the Primary Insurance Amount.  Once total benefits exceed the limit, each recipient’s benefit is reduced by the same ratio down to the limit.  For a detailed explanation of the Maximum Family Benefit, click the link.

So that completes our discussion of Survivor Benefits.  For more information on any of these factors, click the links within the text above – and you can also find all of this information in the book A Social Security Owner’s Manual.  If you have comments and questions, I invite you to leave post them below and we’ll try to work out answers for you.

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