Getting Your Financial Ducks In A Row

When your spouse dies there are a few things that happen to your Social Security benefits that you need to be aware of. These things will affect your benefits significantly if your own benefit is less than that of your late spouse’s benefit (or Primary Insurance Amount). These changes to available benefits could also result in increased benefits if your own benefit is the larger of the two.

These same impacts are apparent for ex-spouses as well. While reading the below, just replace “your spouse” with “ex-spouse” and all provisions are the same.

Spousal Benefits cease

When your spouse dies, the spousal benefits that you may have been receiving will cease. This means that your own benefit is the only retirement benefit that you will receive at this point.

For example, Jane and John, both age 64, have been receiving Social Security benefits for a couple of years. Jane’s PIA (Primary Insurance Amount) is $600 and John’s PIA is $2,000. Since both of them started benefits at age 62, both are receiving reduced benefits.

John is receiving $1,500 (75% of his PIA) and Jane is receiving a combination of her own reduced PIA ($450) and a reduced “excess” spousal benefit in the amount of $280. (For more details on the calculation of reduced spousal benefits, see the following article: Calculating the Reduced Social Security Spousal Benefit.)

When John dies at age 64, Jane’s Social Security benefit is reduced to only her own benefit – $450 per month. The spousal benefit ceases to be paid at all upon John’s death.

But all is not lost – if you were eligible for a spousal benefit, you are also eligible for a survivor’s benefit when your spouse dies.

Survivor Benefits (can) begin

After your spouse dies and the spousal benefits cease, you are eligible for a survivor benefit based on your late spouse’s record.

Using our example from above, where Jane’s total benefit had reduced to $450 upon John’s death – Jane is now eligible for a survivor benefit based on John’s record.

There is a complication to the calculation since John started his own benefit prior to his full retirement age: the minimum “basis” for calculation of the survivor benefit is 82.5% of John’s PIA. John’s benefit upon his death was 75% of his PIA, so the “basis” for the survivor benefit will be increased to 82.5% or $1,650, instead of $1,500.

In this case, Jane has a couple of options:

1) She can begin receiving the survivor benefit immediately upon John’s death. This survivor benefit will be reduced since Jane is under Full Retirement Age (FRA). Since Jane is 64, the reduction is 11.4% from the basis of $1,650 – to a total of $1,461.90.

2) Jane could delay receiving the survivor benefit to her age 66, when there would be no reduction. She would receive her own reduced benefit of $450 per month for the coming two years, and then at age 66 she’d start receiving the unreduced survivor benefit in the amount of $1,650.

There is no point in delaying the survivor benefit past Jane’s FRA – the survivor benefit will not increase beyond that unreduced basis that we described earlier.

There is no impact to the survivor benefit due to Jane’s early filing for her own benefit. So if she had not filed for her own benefit prior when her spouse dies, Jane could start her own benefits immediately upon John’s death. This would allow her a benefit in the amount of $520, having filed for the benefit at age 64 (no spousal benefit “excess” is available since John is deceased). Later upon reaching FRA she would be eligible for the survivor benefit at the unreduced amount, $1,650.

On the other hand, there is also no impact to your own benefit if you start the survivor benefit early. If the example changed and Jane dies before John, if John has not filed for his own benefit by Jane’s death, he could receive the survivor benefit based on Jane’s record until he files for his own benefit. Granted, at his age 64 this would work out to a maximum of $531.60, but it’s better than nothing at all. Later, John could file for his own benefit, either at FRA or later, to receive an increased benefit.

Survivor benefit basis updates

As we reviewed above, in the original case where John starts his benefit prior to his Full Retirement Age, the basis against which Jane’s survivor benefit is calculated can increase to the minimum of 82.5% of John’s PIA.

On the other hand, imagine if John had not started his benefits by the time of his death.  The basis against which Jane’s survivor benefit is calculated will increase to John’s full, unreduced PIA. In this case Jane, being 64 at John’s death, is eligible for John’s PIA reduced by 11.4%, or a total of $1,772. If Jane waits until her FRA she is eligible for a survivor benefit of $2,000.

On the third hand, consider if John was older than Jane. John is older than his Full Retirement Age (FRA) at his death and still has not filed for his own benefit. The resulting survivor benefit for Jane is updated differently. In this case, the delay credits (8% per year) are applied to John’s PIA to determine the basis for the survivor benefit. So if (for example) John was 67 at his death, the basis for the survivor benefit would be $2,160, and at age 64 Jane could receive $1,913. Waiting until her FRA would garner her $2,160 in survivor benefits.

WEP impact eliminated

The fourth thing that occurs when a spouse dies is that Windfall Elimination Provision (WEP) impact to the decedent spouse’s benefits is eliminated.

Considering John’s benefits, if he was subject to full WEP because of a government pension, his benefits are reduced to $1,179 (versus $1,500 without WEP). Upon John’s death, his WEP impact is eliminated, restoring his PIA to the full $2,000. Since John started benefits early, the basis for the survivor benefit reduces as above.

So regardless of the previous WEP impact to John’s benefits, Jane would still be eligible for a survivor benefit with a basis of $1,650.

Key Takeaways

Since the spousal benefit ceases when the first spouse dies, it’s important to know that total benefits will likely reduce for the surviving spouse until survivor benefits begin. This can cause significant hardship as demonstrated in the example above. Jane’s household income from Social Security reduced from $2,230 (John’s $1,500 and Jane’s total of $730) to only $450 upon John’s death. The survivor benefit will replace some of this but not all, of course.

In addition, determining when to start survivor benefits can be critical as well. Jane could start survivor benefits at this point in the amount of $1,463, or she could wait until age 66 to receive $1,650. If she waits she will receive her $450 benefit in the interim.

Timing of the higher benefit is important as well. Using our examples from above, John’s filing date has a significant impact on Jane’s potential survivor benefit. The potential increase could make a huge difference for Jane. This is why so many experts recommend delaying the filing for the larger of a couple’s two benefits as long as possible – it will impact the other spouse’s survivor benefit if she lives longer.

The last key takeaway is that you need to keep the WEP elimination in mind when planning for survivor benefits. This can make a significant difference for the surviving spouse – up to $428 a month from our example.