Do you have longevity in your family tree? Some say that the person who will live to be 150 years has already been born. I say, you’d better be making calculated decisions if you plan to retire in your 60’s as people are already living longer and inflation is the enemy. Since we’re on the topic, please go to the SS website right now and create a login so that you know exactly what to expect from social security here.
Almost every day I read another new study about the impact of increased longevity on financial planning. Bust last week I experienced a stark reminder about the perils of dying too soon. One of my dear friends died August 15 at age 61. It was a shock to our family. It turns out that my friend will never have to worry about outliving her savings, nor will she ever have the chance to collect her first Social Security check. And because she was a widow, there is no one to claim her survivor’s benefit. Her family had many concerns and questions about survivor benefits that I had to be current on before making recommendations. As always, I went to the source and read the SS benefits website.
What if we create a hypothetical situation? Let’s say we have a 58-year old widow who’s husband died two years ago at age 58. He owned a business, which his wife now runs and where their two adult children also work. Is she entitled to survivor benefits at this time? Unfortunately, the widow is not eligible for survivor benefits until age 60. At that point, her survivor benefits would be worth 71.5% of her late husband’s full retirement age benefit amount. However, she would be subject to earnings restrictions if she collected any type of Social Security benefit before her full retirement age while she continued to work.
In 2016, Social Security benefits are reduced by $1 for every $2 earned over $15,720. That means if she earned more than $47,160 this year ($15,720 x 3), she would forfeit all of her benefits to the earnings cap. The earnings cap is indexed to inflation. A higher earnings cap applies in the year one reaches full retirement age and disappears at full retirement age. Any benefits lost to the earnings cap would be restored at that point.
In the example laid out above, I would recommend the client wait until full retirement age to claim the survivor benefits, when they would be worth 100% of her late husband’s retirement benefit and when the earnings cap no longer applies. In the meantime, her own retirement benefit would continue to grow by .66% per month between her full retirement age and 70. At that point, she could switch to her own maximum retirement benefit, assuming it as larger than her survivor benefit.
Here is another example of a difficult case I recently came across. A client was frantic because his wife died a year earlier at age 65, before claiming Social Security. My client, 68, claimed his benefits two years ago. He wondered if he could suspend his Social Security retirement benefits and collect his survivor benefits for two years before resuming his own at 70. The answer is “No”. Because the husband’s own retirement benefit was larger than his wife’s benefit, his survivor benefit effectively goes to waste. If he had not yet started his own retirement benefit, he could have claimed his survivor benefit first and switched to his own maximum benefit at 70.
But under the new Social Security rules that took effect April of this year, anyone who suspends his or her benefits at full retirement age or older cannot collect any Social Security benefits – including survivor benefits – during the suspension period.
Social Security is the ultimate insurance pool. For most people, it provides retirement benefits for as long as they live, and survivor benefits for a spouse or minor dependent children. But depending on the age of the surviving spouse, some may have to wait a long time to collect a benefit, and if their own retirement benefit is larger, they might never collect a survivor’s benefit at all.
Remember, the more one works, the less likely they’ll worry about running out of money during retirement. I’ve learned that all too often people make a premature retirement decision and they learn the hard way that they can’t make it. If you need a second opinion on what you are already planning, let us validate it as a calculated decision when it comes to retirement.
Blake Parrish
Senior VP, Portfolio Manager
Phone: (503) 619-7237
E-mail: blake@bpfinancialassoc.com
Certified Financial Planner Boardof Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.”