NAPFA FALL CONFERENCE
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Young widows and widowers face complex Social Security rules
By Marcia Mantell
When a client is widowed before age 60, financial advisors may need to help them navigate through complex Social Security survivor rules, and even come back to the issues multiple times. Benefit payment amounts vary based on the age and presence of children and timing considerations. Further, clients can run into offsetting rules that reduce expected payments. For example, receiving fewer benefits due to the earnings limit and experiencing the cutoff of survivor benefits when the youngest child turns 16 catches many by surprise.
Young widowed parents can receive Social Security survivor benefits
If a young wife or husband becomes a widow(er), they have no income protection unless a life insurance policy is in place—unless they are raising the minor children of the deceased parent. Young widowed parents are entitled to survivor benefits for a period of time, along with their minor children. The parent receives 75% of their deceased spouse’s benefit, as determined by Social Security (the “determined benefit”), until the youngest child reaches age 16.
However, if they earn more than the earnings limit ($19,560 in 2022), some or all of their Social Security benefits will be withheld. Often, surviving spouses take a short time away from work, then return only to find their Social Security benefits are no longer payable.
Survivor benefits for young parents go back to the origins of Social Security. In the original law, Congress provided income for unprotected young wives and children if the husband died early. Women in the 1930s were often prohibited or discouraged from working in covered employment categories, and there was no formal daycare industry. Young widowed fathers were not afforded the same benefits until 1975.
Minor children are eligible for survivor benefits
When either a mother or father dies, each minor child also receives up to 75% of the deceased parent’s determined Social Security benefit. The benefit continues for each child until they reach age 18 (or 19 if still in high school).
It’s important to note, however, not every child may receive the full benefit. Payments made to the family as a whole are limited by the family maximum. This is an additional calculation the Social Security Administration will apply that limits how much a family can receive in child survivor benefits together with the surviving spouse’s benefits.
If there is a surviving spouse plus three minor children, the spouse receives their 75% benefit. Then the children’s benefit amounts will be adjusted pro rata so that, in total, all recipients’ payments do not exceed a calculated maximum value.
Ex-spouse parents may also benefit
If a divorced client’s ex-spouse dies while minor children are at home, the surviving parent may receive a surviving divorced spouse payment. They are entitled to 75% of the deceased’s determined benefit. But there are additional requirements:
- The surviving divorced client must be caring for the minor children.
- Their marriage had lasted 10 years or longer before the divorce.
- The surviving ex is unmarried.
Payments made to the ex-spouse and the minor children are subject to a family maximum calculation.
Example: when things go awry
The complicated rules can create hardship for widows and widowers. Let’s say you are working with a 52-year-old widow. She’s been raising her three minor children since her husband died 12 years ago. While she’s worked some odd jobs here and there, she’s been under the earnings limit so she has been receiving survivor benefits. Her youngest will be 16 next year. At that time, your client’s benefits will stop (the child’s benefits continue until age 18). And she likely doesn’t realize it.
The widow may be receiving $2,000 per month that will abruptly stop. As her financial advisor, it’s time to put a plan in place for how she’ll replace that important source of income.
In this case, there is an eight-year gap between receiving benefits as a result of caring for the minor children and age 60, when her surviving-spouse retirement benefits can begin.
Before age 60, additional decisions must be made that will maximize each benefit the surviving widow(er) will have to choose from. Surviving spouses will make two claiming decisions. They will either take their survivor benefit first, then switch to their own at full retirement age (FRA) or later; or, they claim their own early, and switch to their survivor benefit at FRA.
Either claiming order requires careful consideration of each benefit, the reductions that may apply, and the clawbacks due to the earnings limit before reaching FRA.
The goal is to help the surviving spouse maximize both survivor benefits and their own benefit (if available).
Keep the rules in perspective
Unfortunately, survivor parent benefits were not designed to take a parent all the way to retirement. Nor are they often sufficient to meet the financial needs of a younger household. There can be years when no Social Security benefits are available to the surviving parent.
Addressing all options for income, including returning to work, various time periods, and different benefit amounts is an important service financial advisors must incorporate in their planning process.
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Marcia Mantell’s Oct. 20 workshop before the NAPFA Fall Conference in Denver will tackle “
Marcia Mantell, RMA®, NSSA®, is the owner of Mantell Retirement Consulting Inc. She is a subject matter expert on Social Security, Medicare, and making the transition into retirement. You can see her latest posts on BoomerRetirementBriefs.com or read her books.
image credit: istock.com.RichLegg
