What Options Would My Wife Have If I Die Before She Reaches FRA?

Category: 
Jun 29 2019 - 9:39am

Hopefully these questions are generic enough that you can address them.

My wife is 9 years younger than I and given the longevity difference my plan has been that I need to provide for 16 years of financial support for her after my death.

To accomplish that we determined that I would wait until age 70 to collect my benefits to provide her with the maximum survivors benefit. Originally we planned on her collecting benefits on her wages at 62 then switching to her spousal benefit at her FRA.

I will be turning 70 in September and as we have reviewed the plan we see that there are new rules that potentially impact our plan.

These are the new ground rules as I understand them. Is my understanding correct?

As I was born before 1954 I had filed for and suspended my benefits prior to the cut off date for the new rules in case that would be of benefit.

My wife was born in 1958 and turns 62 next February. Under the new rules, irrespective of my file and suspend status, when she applies for benefits she will be deemed to be filing for both the benefit on her wages and her spousal benefit, since I will already be receiving benefits when she applies.

Social security will automatically (no options on our part) identify the benefit that results in her receiving the highest monthly benefit amount and award her that benefit. (Realizing that a person is always awarded a benefit based on their earnings plus, if appropriate, an excess spousal benefit that brings their total monthly benefit amount up to the spousal benefit to which they are entitled.)

If she is receiving her benefit based her earnings, upon my death she would need to apply to begin receiving her survivor benefits and could do that immediately upon my death, of if I passed away before she reached her FRA could wait until she reached FRA and apply at that time and in both instances would receive a survivors benefit equal to 100% of my benefit - no reduction for my death before she reached her FRA.

If she is receiving her spousal benefit, upon my death her benefit is automatically moved to collecting her spousal benefit upon SSA being notified of my death. If I pass away after she reaches her FRA - not an issue her survivors benefit would equal my benefit amount.

However, this would seem to present a problem for our plan of maximizing her survivors benefits if I should pass away before she reached her FRA. In this case her spousal benefit would be reduced based on the number of months she began collection before she reaches her FRA.

Correct so far? In this second event is there anything that can be done to eliminate that risk, such as upon my death her suspending her benefits until she reaches her FRA?

The question then boils down to what benefit will my wife be awarded when she applies for benefits. Her FRA PIA (we don't know the exact figure because the relevant indexing and bend points won't be published until October) is below her spousal benefit at FRA. Lets assume that the difference is $ 50.00. Because the formulas used to reduce benefits for the different benefit types are different it turns out that in month 55 of early benefits the monthly benefit based on her earnings is higher than the benefit based on spousal benefit.

In this case will they say that because her month 55 benefit on her earnings is higher she will be awarded a benefit on her earnings or because her benefits at her FRA show that the spousal benefit is higher she will be awarded her spousal benefit?

There is a hidden assumption in this question, that is do the figures on the benefit matrix report always represent the differences in the two benefits.

If I have this right the excess spousal exemption is the FRA spousal benefit minus the earnings based FRA PIA. Assuming this is a positive number so spousal benefits are due, if benefits are claimed prior to FRA then the excess spousal benefit is reduced, using the spousal benefit reduction formula, based on the number of months early it is claimed and then added to the amount the person is receiving on their own benefit.

The question then is if a person is eligible for both benefits when they apply will the spousal benefit column amounts shown on the Benefit Matrix report always accurately reflect the total spousal monthly benefit that would be collected in any month based on the application date after applying the calculation formula?

The rules seem to state that if after you apply you become eligible for a different benefit, i.e, your spouse had not filed for benefits so spousal benefits were not an option, and you later become eligible for that other benefit, social security will automatically reevaluate your situation and award you the higher benefit - automatically.

What will they do in this case when say in month 40 the monthly spousal benefit becomes larger than the benefit based on her earnings? Will they automatically switch her benefits to spousal benefits? Or, since she was eligible for both when she applied will they leave her on the benefit on her earnings and she would have to apply for spousal benefits at the time of her choice after my death?

Thank you for your help with these questions.

Hi,

Everything you stated up to where you ask 'Correct so far?' is accurate, with one exception. If your wife is drawing her reduced retirement benefits plus a reduced excess spousal benefit and you die before your wife has reaches her full retirement age (FRA), she could opt to stop receiving the excess spousal benefit starting with your month of death and wait until FRA to receive unreduced widow's benefits (https://secure.ssa.gov/apps10/poms.nsf/lnx/0300207005#c).

Based on your questions that follow regarding the calculation of your wife's own Social Security retirement and excess spousal benefits, I think you may be misunderstanding how that works. If 50% of your primary insurance amount (PIA) is higher than your wife's PIA and you are drawing your retirement benefits, then your wife would still qualify for an excess spousal benefit regardless of when she starts drawing her benefits. The unreduced amount of each benefit would be calculated first, and then if your wife files prior to FRA each benefit would be reduced based on your wife's age at the time she starts drawing the benefit. By the way, a person's PIA is the amount of their Social Security retirement benefit if they start drawing at FRA.

For example, say Sally (DOB 2/15/1958) has a PIA of $1200. Sally's husband is drawing his benefits and has a PIA of $2500. Sally's unreduced excess spousal rate would then be $50 (i.e. $2500/2 - $1200). If Sally applies to start drawing benefits effective with March 2020 (i.e. 55 months prior to FRA), her own retirement rate will be reduced to $865 and her excess spousal rate will be reduced to $33.50, giving her a combined monthly amount of $898 after rounding.

The only way that Sally would become ineligible for an excess spousal benefit would be if she continues working and her earnings cause her PIA to grow to more than 50% of her husband's PIA, or if she waits past FRA to claim her retirement benefits and her own benefit rate inclusive of delayed retirement credits (DRC) exceeds 50% of her husband's PIA. Or, if Sally's PIA is already more than 50% of her husband's PIA when she starts drawing, the only way that she'd later qualify for an excess spousal benefit is if her husband continues working and raises his PIA to more than twice as much as Sally's PIA. In the latter situation, Social Security would be unable to automatically identify Sally's eligibility for an excess spousal benefit. So, Sally would need to file an application in order to be awarded the excess spousal benefits.

You and your wife may want to strongly consider using our software (https://maximizemysocialsecurity.com/purchase) to fully explore and compare your options in order to determine your best overall strategy for claiming your benefits.

Best, Jerry