Whenever I mention social security survivor benefits, many assume I'm referring to a surviving spouse's one-time lump sum death benefit of $255. Although the lump sum payment is available to surviving spouses, I'm alluding to the monthly benefits that may be available to a surviving spouse and dependents of a deceased parent. The rules regarding survivor benefits provide widows and widowers greater flexibility than other Social Security beneficiaries because retirement and survivor benefits represent different pools of money (see "the big switch" below). Another valuable feature regarding survivor's benefits is the additional lifetime free insurance automatically provided to the spouse receiving a lower benefit. A surviving spouse essentially "steps into the shoes" of the deceased spouse. The surviving spouse is eligible to receive the amount the decedent received or was entitled to receive at the time of the decedent's death.
Monthly survivor benefits are available to certain family members, including:
- A widow(er) age 60 or older (age 50 or older if they are disabled)
- A widow(er) of any age who has not remarried and is caring for the deceased's child (or children) under age 16 or disabled
- An unmarried child of the deceased who is younger than age 18 (or up to age 19 if a full-time student) or 18 or older with a disability that began before age 22
- A stepchild, grandchild, step-grandchild, or adopted child, under certain circumstances
- Parents, age 62 or older, who were dependent on the deceased for at least half of their income and whose own Social Security benefit would not be larger than that of the deceased offspring
- A surviving divorced spouse, if they meet other eligibility requirements
Let's assume William decides to wait until age 70 (instead of his Full Retirement Age (FRA of 66) to take advantage of the delayed retirement credits available. The additional four years provided an extra 8% simple compounded interest each year, resulting in a monthly benefit of $2,640 at age 70 (not including the cost of living adjustments, which would make benefits greater). Marilyn can receive William's larger amount if it exceeds her eligible retirement amount.
Early Filing Penalty For Survivor Benefits:
Social security benefits include retirement, spousal, survivor, dependent, or disability payments. The retirement, spousal, or survivor benefits all carry a penalty for filing earlier than you are expected to.
Let's assume William passed away suddenly when he was only 61, Marilyn would be entitled to survivor benefits at age 60, but the benefit is reduced because she is filing early and not waiting until her full retirement age. If Marilyn's full retirement age is 67 and she decides to receive survivor benefits at age 60, she will only receive 71.5% of William's Primary Insurance Amount.
Earning Cap Penalty for Survivor Benefits
Similar to the early filing penalty for benefits received before one reaches their FRA, there is a penalty for earning too much money while receiving retirement, spousal, or survivor benefits.
Let's assume Marilyn begins receiving survivor benefits before she reaches her Full Retirement Age (67). If Marilyn continues to work while she receives benefits, the benefits can be reduced until she reaches FRA. The benefit reduction is not permanent; it accrues and is eventually paid back, beginning on her FRA.
The Big Switch
Survivor and Retirement Benefits are considered separate pools of money and therefore have separate rules and requirements. In short, there is an opportunity for a surviving spouse to begin receiving survivor benefits as soon as possible (at least age 60) and, at the same time, let their retirement benefits grow until they reach age 70, and which time they can convert their benefit from a survivor to a retirement benefit (if retirement benefit is higher - otherwise the survivor benefit will still be paid. Note: You cannot receive a separate survivor and retirement benefit simultaneously.
Let's assume Marilyn applies for survivor benefits at age 60. As mentioned above, under "early filing penalty for survivor benefits," the payment would be reduced to 71.5% of the eligible amount. However, the retirement benefit she is entitled to (if it is larger than the survivor benefit) would be allowed to grow 8% a year past her FRA of 67. She will be paid whichever benefit is higher - the survivor benefits or her increased retirement benefit. The increased benefit can serve as additional free lifetime insurance to the spouse with the lower benefit amount.