Widows Need to Understand Social Security Benefits

In February 2018, the Social Security Administration (SSA) released an audit report revealing how a percentage of widow benefits have been underpaid. This is in addition to the errors disclosed last year affecting widows. The latest report concerns widows who are dually entitled to a retirement benefit and a survivor benefit. In a sample of those falling into this dually entitled category, 82% were found to be underpaid benefits.

Widow's Social Security Benefits Improperly Expained

An application for retirement or widow’s benefits is an application for both benefits, unless it is restricted. When a widow’s, or widower's, benefit is higher, claimants may delay filing their retirement application up to age 70 to increase their retirement benefits. Claimants may limit the scope of the application to exclude retirement benefits to maximize the amount of future benefits, including the effect of delayed retirement credits before age 70.

The report states, "SSA employees must explain the advantages and disadvantages of filing an application so claimants can make an informed filing decision. However, the decision to file belongs solely to the claimant. SSA employees must discuss and document any unfavorable filing decisions." This means if a widow is entitled to both a retirement and survivor benefit, the SSA employee, by previously established SSA rules, is supposed to explain the claiming options and then document the claimant's decision. This report finds this has not happened in many cases.

Example Illustrating Income Lost From Wrong Decision

Mary just turned 66 and has never collected Social Security benefits. She has a retirement benefit from her earnings history of $1,800 per month. She is also entitled to a survivor benefit on her late husband's earnings record in the amount of $2,000 per month. She cannot receive both of these amounts, but she does have options regarding how each benefit type is claimed. If she gets incomplete advice, as disclosed in the SSA report, she may apply for benefits in a manner that effectively elects her retirement benefit of $1,800, plus an additional $200 of survivor benefit, for a total of $2,000. 

Isn't the result favorable since she is receiving the higher $2,000 amount? The answer is no. Following the above filing method, which is the "normal" filing method in this situation, creates less income in the long run. Mary will receive $2,000 from now on, that's it, end of story (Actually she will get whatever cost of living adjustments (COLAs) happen each year, but let's ignore that momentarily for simplicity's sake). Now, if Mary receives complete advice, she will be told she can restrict her application to only her survivor benefits. She will get the same $2,000, because that is the survivor benefit amount based on her deceased spouse's income history.

The benefit of doing this is she will now earn delayed retirement credits on her retirement benefit between age 66 and age 70. This means at age 70, she can then elect her retirement benefit, which has now grown to $2,376 (a 32% increase in her benefit; 8% for each year she delayed). The math is pretty simple at this point. (For related reading, see: Delaying Social Security Can Add Up.)

Either way, she will receive $2,000 a month between ages 66 and 70, but at age 70 she will receive $376 more every month under the second method. Not only will she be receiving the extra $376, but future COLAs will have a greater impact due to the compounding of a higher number. 

In this example, if Mary properly restricts her application, here is the cumulative increase in benefits she will receive if she lives to the following ages assuming 2% annual COLAs:

  • Age 80: $54,905
  • Age 85: $84,100
  • Age 90: $116,334

As illustrated by this example, Social Security claiming decisions can mean a difference of tens of thousands of dollars. Knowing how to properly file for survivor benefits is very important.

Have All the Facts Before Claiming Survivor Benefits

This doesn't mean the SSA is incompetent. On the contrary, given the size and complexity of the program, the SSA is actually quite good, and one of the more financially well-run government agencies. The issues here is claiming multiple benefits is somewhat complex, and survivor benefits have to be claimed at Social Security offices, which are coming under more pressure with office closures. The bottom line, as always, is to make sure you are getting the best advice before making a claiming decision.

(For more from this author, see: Social Security Benefit Claiming Changes Explained.)

 

Disclosure: Any information presented here is general in nature, believed to be reliable as of the date published and is not intended to be and should not be taken as legal, tax, investment or individual financial planning advice. Competent, licensed professionals should be consulted when implementing any kind of financial, estate, tax or investment strategy.