When to take Social Security benefits is a decision that has major consequences for not only the worker but their spouse. There are a few mistakes people frequently make that end up costing their loved ones, advises the recent article “If You Love Your Spouse, Don’t Make This Social Security Mistake” from NASDAQ. The most common mistake concerns deciding when to start taking Social Security benefits.
By starting to claim benefits at age 62, you’ll get a reduced amount compared to what you would receive at your full retirement age. If you can wait until age 70 to claim Social Security, you and your spouse will benefit from the delayed retirement credits.
Most retirees base their benefit decision on how long they expect to live and their financial needs. People who expect to live a long time will get more money if they can wait until age 70, when their monthly benefits will be larger. People who don’t expect to live very long past retirement, usually take their benefits early.
However, when you decide to take your benefits has an impact on your surviving spouse. When both members have worked and earned their benefits, it’s not as big of an issue. However, for a spouse who does not have a work history of their own or whose earnings are significantly lower, this can have a big financial impact.
The issue is survivor benefits. You are entitled to receive a survivor benefit when your spouse dies, and that benefit is based on their work history. If the surviving spouse claims benefits earlier than full retirement age, there will be a reduction.
However, if the deceased spouse claimed retirement benefits early, the surviving spouse will receive a reduced survivor benefit.
Here’s an example. Let’s say a married person, age 62, would get a retirement benefit of $1,500, if they retired at age 66 and 8 months. The person has a terminal illness and will not live more than a few more months. The spouse is also 62. Some people in this situation would start taking their Social Security benefits immediately. The reduced monthly payment would be $1,075. It’s less than the $1,500, but it’s better than nothing.
The issue is that the surviving spouse would only be eligible to receive $1,075 per month. That payment would only be if the surviving spouse waited until full retirement age. If a claim were made before full retirement age, the monthly benefit would be $884.
If the terminally ill person chose not to claim Social Security at all, the surviving spouse would be entitled to a survivor benefit of $1,500, again if they waited until full retirement age.
That $350 difference may not feel big on paper, but when there is only one income, it adds up. Waiting to take benefits could make all the difference in the quality of life your spouse enjoys for the rest of their life.
Reference: NASDAQ (Nov. 14, 2020) “If You Love Your Spouse, Don’t Make This Social Security Mistake”