By David G. Freitag, CLU

The Center for Disease Control updates their web site, www.CDC.GOV, every evening. On June 22th, they reported that we have lost 599,860 people to the COVID-19 pandemic since the outbreak started last year. The devastating magnitude of that number is hard to comprehend. However, to make this number even more tragic is the other CDC statistic that of the people who have died, eight out of every 10 were age 65 or older. Which means that as families adjust to the loss of their loved husband, wife, aunt, uncle, or grandmother and grandfather, the survivors must deal with decisions about the Social Security benefits available for the survivors.

David G. Freitag

Dave Freitag

When someone dies, it is important to understand the differences between spousal benefits and survivor benefits. Although both words start with an “S,” based on the long-established rules in the Social Security system, there is almost no similarity between survivor benefits and spousal benefits. 

Here is the biggest difference: At full retirement age (FRA), spousal benefits are capped at 50%. For example, while both husband and wife are alive, if Bob’s benefit is $2,400 a month, his wife, Mary, qualifies for $1,200 a month payment at her full retirement age even if she never worked or paid any payrolls taxes during her lifetime. This spousal benefit is paid without any reduction in benefits paid to Bob. Once Bob has filed for his own benefit, he opens the window for Mary to collect her benefit based on his full retirement age work record. If she is younger than her full retirement age, her benefit will be actuarially reduced for early filing.

With spousal benefits, for those born after January 1, 1954, if Mary has earned benefits from her own work record, those benefits are always paid first. The spousal benefits are then paid to make sure that Mary receives her 50% of Bob’s benefit. In this example, if Bob’s benefit is $2,400 a month and Mary’s benefit is $1,000 then she will receive $200 from Bob’s record making her combined payment equal to $1,200 a month or ½ of Bob’s FRA benefit. If Mary has a high earning record, say $2,400 a month, then she will never receive any spousal benefit from Bob.

Survivor benefits are quite different. First survivor benefits are paid at 100% not 50%. Second survivor benefits can start as early as age 60 with a reduction for early filing. Spousal benefits cannot start before age 62, and they also have a reduction for early filing. For an example, assume that Bob, died at age 67 and was receiving $3,000 a month. Mary, age 67, if she never worked, would see a survivor benefit from Bob of $3,000 a month. If Mary had benefits on her own record, those would be paid first, and the balance of the benefits would come from Bob’s account. So, the numbers look like this: Bob’s benefit $3,000, Mary’s benefit $2,400 – Bob died – Mary receives $3,000 ($2,400 from her record and $600 from Bob’s record). Note, however, that the household income is reduced from $5,400 a month to $3,000 a month. There will always be a reduction in household Social Security benefits when one spouse dies. This reduction in benefits should be recognized as 100% certain. When someone dies, one of the benefit checks will stop.

In 2015 Congress passed the Bipartisan Budget Act. In addition to numerous other budget issues, the act also contained major changes to the Social Security program. One of the most significant changes was the elimination of a filing strategy that allowed one spouse to file for benefits while the other person collected spousal benefits and at the same time earned delayed retirement credits on their own record. This filing strategy is called restricted filing. It was (and in some cases still is) a powerful way to increase the cumulative Social Security payments over the lifetime of a husband and wife. If you are born after January 1, 1954, this restricted spousal benefit filing strategy is no longer an option.

However, the 2015 Bipartisan Budget Act, did not apply the restricted filing limitation to survivor benefits. As a result, survivors have more choices about their benefits than spouses who are both alive.

Consider this case. At full retirement age (66 and 2 months), Julie loses her husband Frank (67). Frank was collecting his Social Security benefit of $3,000 a month. Julie was about to file for her benefits of $3,000 (adjusted for early filing). Instead of filing on her own record, Julie uses the restricted filing strategy and takes a $3,000 a month survivor benefit from Frank’s record. While these survivor benefits are being paid to Julie, her one record continues to add delayed retirement credits of 8% per year. At her age 70, Julie switches to her own record which has now increased to $3,920 and receives that amount (adjusted for COLA increases) for the rest of her life. If she lives to age 90, when compared to filing on her own record at 66, there is over a $215,000 difference and this does not allow for any COLA increases over her life expectancy. Clearly restricted filing has a big advantage over just filing on her own record.

Survivors who are younger might have a different way to leverage survivor options. In this scenario, Jane, age 63, loses her husband, Paul. Paul was receiving $3,000 a month when he died. Jane’s benefit on her own work history is $2,000 a month. Assuming she is not working, one option would be for Jane to just take a reduced survivor benefit from Paul’s record. Another idea would be for Jane to take reduced benefits on her own record and when she reaches full retirement age, switch over to a 100% benefit from Paul. Filing for benefit on her own record first could generate over $87,000 more for her assuming she lives to age 90.

Survivors do have choices. Careful consideration is called for when adjusting to the new reality of life after a loved one dies. The reality of COVID has created confusion and pain across all of this country, north, south, east and west. It is very important to evaluate the options and make the educated choices that are best for the survivor and their family.

About the author: David G. Freitag, CLU, ChFC, CRPC

David G. Freitag, CLU®, ChFC®, CRPC, is an industry veteran in financial services and wealth management. He brings a deep passion and unparalleled expertise in Social Security filing strategies and retirement income planning to his current role as a financial planning consultant with Massachusetts Mutual Life Insurance Company (MassMutual). David holds Chartered Life Underwriter, Chartered Financial Consultant, Chartered Retirement Planning Consultant designations, and his Series 7 and 24 securities licenses. He also holds a Master of Education and Bachelor of Science degrees from the University of Maryland.

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