What Happens to Unused Social Security Earnings When Someone Dies?

BY Paul Solman  December 24, 2012 at 11:36 AM EST


Photo by Flikr User seen by tobfl via Getty Images.

Larry Kotlikoff’s Social Security original 34 “secrets”, his additional secrets, his Social Security “mistakes” and his Social Security gotchas have prompted so many of you to write in that we now feature “Ask Larry” every Monday. We are determined to continue it until the queries stop or we run through the particular problems of all 78 million Baby Boomers, whichever comes first. Kotlikoff’s state-of-the-art retirement software is available here, for free, in its “basic” version

Carol — Albuquerque, N.M.: Just curious. When someone dies, what happens to their unused Social Security earnings if they don’t go to a spouse or kids?

Larry Kotlikoff: They vanish into thin air. That’s the nature of an insurance scheme. If your house doesn’t burn down, your premiums have, ex post, been wasted. With longevity insurance, if you die early, you don’t get paid off. On the other hand, you’re in heaven, where God, not cash, is king.

George — Athens, Ga.: I turned 59 four months after my wife turned 62. She is drawing Social Security benefits based on her work record. I have been the higher earning spouse. If I die before I begin drawing benefits and before my full retirement age of 66, and even before she turns 66, will she (if she waits until she is 66 to apply for survivor benefits) receive what I would have received at age 66, based on my work record at the point of my death? Or is it based on what I would have received if I had begun receiving benefits at the age I would have been — i.e., 62 years and eight months — at the point of her application?

Larry Kotlikoff: Yes, to your first question. If you die before full retirement age, having never taken benefits, she will receive what you would have. If you die after full retirement age, having never taken benefits, she’ll give your full retirement benefit augmented by the Delayed Retirement Credit. If you take benefits early, however, she’ll receive your reduced benefit as a survivor benefit and it will be further reduced if she herself takes this survivor benefit early.

I don’t mean to be grisly, but if you know for sure you will die in the near term, I would not take benefits early because it will mean permanently reduced survivor benefits for your wife.

Suzanne Sullivan — Denver: Can someone get the ex-husband pension? Divorced after 22 years of marriage when he died.

Larry Kotlikoff: You can collect survivor benefits based on you divorced husband’s earnings record. You can start collecting them as early as 60. But if you collect your survivor benefits early — before your full retirement age — they will be permanently and significantly reduced.

Linda G. — Troy, Mo.: In 1992, after a brain tumor left me with disabilities (the hidden, but equally devastating kind), I filed for disability insurance that I had purchased through self employment. It paid me a fixed income til this past October when I turned 65. As part of the claim process, I had to file for government Social Security Disability Insurance (SSDI). I now have no income. A few years ago, a phone call from someone called Social Security advocates (generically) suggested I might be able to apply again and possibly even get money retroactively, though I’m not holding my breath. I have had no time to really get informed about all this until now.

As for health insurance, double digit increases twice a year plus co-pays etc. were too expensive. I can’t afford flu shot, haven’t had an MRI since 2001. Private insurance disability excludes me from Medicare that would have helped had I received SS disability, is that right? Do I have to wait til I apply for retirement before getting Medicare help? Many thanks.

Larry Kotlikoff: You can join Medicare starting at 65 and you may be able to collect Social Security retirement benefits as early as 62 if you worked for more than 40 quarters before becoming incapacitated.

[Paul Solman: So sorry for your trials and tribulations, as is Larry, I'm sure. He answers questions here out of the goodness of his heart. I would only add that when critics deride the "safety net" and the disincentives to work that it supposedly provides, they often forget about life's cruelties and that many Americans, like yourself, literally live on the edge.]

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions.