How to maximize one Social Security benefit in a tough retirement

Here's a way to navigate a Social Security circumstance for which it is difficult to plan.

Jun 2, 2024 - 06:30

0 8

How to maximize one Social Security benefit in a tough retirement

Americans commonly think of Social Security benefits as monthly checks people receive when they retire.

While this understanding is certainly correct, it is important to realize there are other ways the federal program provides financial assistance as well.

Funded by payroll taxes, it is run by the Social Security Administration and is also called the Old-Age, Survivors, and Disability Insurance (OSDAI) program.

Social Security also provides benefits for disabled people, provided they meet some necessary requirements based on work histories and medical conditions.

But there is another form of income the program pays out to those who encounter a different difficult situation — the death of an eligible beneficiary.

Dependents of Social Security participants who pass away, including children and other family members, can be extended benefits as well.

Social Security's survivors benefits for couples

Social Security benefits for couples can be extended to survivors in the event one of them dies.

And these benefits operate independently from retirement benefits, which means people can delay one while collecting the other.

This creates a complicated decision with which the survivor is confronted.

At 60 years old, with a formula involving the deceased spouse's earnings history, the surviving spouse can start receiving a survivors benefit.

More on retirement:

Another option involves the survivor holding out until they reach the age of 62, when they can begin to take their own retirement benefit.

Doing this either way allows for the ability to receive the other benefit later. And any decision made with regard to this choice can add up to a large difference in total lifetime benefits received.

A person is seen calculating retirement savings. Social Security survivors benefits present recipients with some complicated, but important, decisions to make.
Shutterstock

An expert offers an example to explain Social Security survivors benefits

Author Jim Blankenship, writing for TheStreet's Retirement Daily, described a scenario to help clarify the type of decision-making a survivor might face.

The example involves a 59-year-old woman whose husband, a few years older than her, recently passed away. The man had been planning to file for Social Security benefits at 70, but only lived to 65.

In this hypothetical instance, the woman had left the workforce or had wound down her earnings to the point where she would not be limited by the Social Security Retirement Earnings Test (RET), which can reduce benefits for people claiming them before full retirement age.

When she turned 60, the woman would be eligible for the survivors benefit, or she could wait until she became 62 to collect her own benefits.

Blankenship, in this example, refers to the woman as Michelle and the man as Thomas.

"Had Thomas lived to his full retirement age (FRA) of 67, he would have been eligible for a benefit in the amount of $2,500 per month," he wrote. "Michelle has also worked and earned a benefit that will be $2,800 per month if she waits until her FRA (also 67) to file for benefits."

If the woman chose to begin receiving the survivors benefit at 60, she would receive the minimum of $1,787. But waiting until 67 would enable her to receive the full $2,500 per month.

"If Michelle waits until age 67, her retirement benefit would be unreduced at $2,800 per month," Blankenship wrote. "Waiting until her age 70 to file, Michelle would be eligible for a maximized benefit in the amount of $3,472 per month."

"Comparing these two situations, at first you might think the second one is the better option, since it's $173 more per month," Blakenship added. "But Michelle would have to wait for two more years before she takes that option, forgoing $42,888 over that period, $21,444 per year."

In this scenario, the woman would clearly be better off taking the survivors benefit first and her own benefit later.

Individual circumstances, of course, are different and could argue for either decision depending on the specifics.

"But just knowing that there are options to choose from is valuable to know as you approach this decision," Blankenship wrote.