What Social Security’s Survivors Planner won’t tell you about taking widows benefits

Social Security rules are complicated and change often. For the most recent “Ask Larry” columns, check out maximizemysocialsecurity.com/ask-larry.

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. Find a complete list of his columns here. 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. Let us know your Social Security questions. Kotlikoff’s state-of-the-art retirement software is available here, for free, in its “basic” version.

Dear Social Security Aficionados,

As promised last week, I’m going to spend some time here and in future columns giving you a quantitative sense, using a very low-cost, but meticulously accurate software program, of what’s at stake in making the right and wrong Social Security collection decisions.

Last week, I considered the case of a 60-year-old widow named Sally, whose husband Ben recently died at age 67 having not taken his retirement benefit. I demonstrated that whether Sally should take her retirement benefit before or after taking her widow’s benefit depended on who had earned more money in the past. I also showed that getting these decisions right could make up to a $200,000 difference in Sally’s lifetime Social Security benefits.

Now, I want to show you how a widow’s collection decisions can be critically impacted by the special RIB-LIM widow’s benefit formula that comes into play when a deceased spouse takes retirement benefits early. (I discuss this formula in “Why many widows lose nothing from taking benefits early.”)


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My example today involves Jill, who just turned 60. Her husband Sam died last year at 65. Jill retired last year. She worked as a librarian and ended up with a $30,000 salary. Sam also retired at 60, earning $182,000 his last year. Both Jill and Sam started working at 22 and experienced a steady 3 percent annual growth in their pay. Let’s assume, to begin, that Sam died without having taken his retirement benefit.

Jill’s been told she can collect her widow’s benefit starting at 60 — in other words, right away — and her retirement benefit starting at 62. She’s been reading anthologies of Roman poetry rather than my weekly column. Consequently, her plan, which she follows, entails taking her widow’s benefit now and her retirement benefit at age 62. This strategy produces lifetime benefits of $614,062.

This is a very bad game plan. It will leave $116,527 on the table compared to the optimal strategy of Jill’s taking her retirement benefit at 62 and her widow’s benefit at 66 — her full retirement age — when it’s as large as possible.

But now suppose that Sam had actually taken his retirement benefit before he died. Indeed, suppose he took it starting at age 64​. In this case, Jill’s best option is to still take her retirement benefit at 62, but to take her widow’s benefit at 63, not at 66. Doing so will produce $32,625 more in lifetime benefits than taking her retirement benefit at 62 and widow’s benefit at 66. And this optimal strategy beats what Jill plans to do — take her widow’s benefit now and her own retirement benefit at 62 — by $57,865.

Why does the fact that Sam took his own retirement benefit early make it optimal for Jill to take her widow’s benefit early? Jill is getting nailed by one of Social Security’s nastier gotchas, called the RIB-LIM special widow’s benefit formula. This formula applies for decedents who took their own retirement benefits early.

If Sam hadn’t taken his retirement benefit early, Jill’s lifetime benefit, based on the optimal collection strategy, would have equaled $730,589. But because Sam did take his retirement benefit early, Jill’s new optimal collection strategy generates only $671,827 in lifetime benefits. So Sam’s decision to file early cost Jill close to $60,000 — assuming she does what the software suggests.

Why should what amounts to a life insurance policy that’s being provided to Jill based on Sam’s lifetime of Social Security FICA contributions depend on when Sam took his retirement benefit? I can’t say. To me this is just another outrageous, capricious, unjust and incredibly opaque element of a Social Security System that should be redesigned from scratch. But whatever you or I think about it, the fact remains that thanks to RIB-LIM, there is no gain for Jill to wait beyond age 63 to collect her widow’s benefit; in other words, her widow’s benefit will not be larger if she waits longer to collect it.

You won’t learn this point by reading Social Security’s Survivors Planner and reading about survivor benefits. There is no mention of the RIB-LIM formula. Instead, you get the strong impression that taking widow(er) benefits before full retirement age always means permanently lower benefits.

And now for some specific Q+As.

Question: My husband turns 66 next year and I will be 62 at that time. We were advised to file and suspend for his benefits and then he would later start collecting at 70. We were also told it would be better for me to start collecting a spousal benefit when he files and suspends next year. (It will always be a higher amount than my benefit based on my work record). Is that amount static or will it increase once he starts collecting at 70 (besides cost of living increases)?

Also, we have a disabled adult child (DAC) who was declared disabled before the age of 22 and now is receiving SSI. We have been told that she could collect 50 percent of her father’s retirement amount when he turns 66 if he files and suspends, but that amount will remain the same no matter when he starts collecting because the formula is 50 percent of what he would have received at full retirement age. Is all of this true, and would the rule for our daughter be the same for me as the spouse?

Larry Kotlikoff: This appears to be good advice. If your husband files and suspends, your daughter can collect a child benefit equal to 50 percent of his full retirement benefit. You can also collect a child-in-care spousal benefit equal to half of his full retirement benefit.

But the sum of your child’s benefit, your child-in-care spousal benefit, and your husband’s full retirement benefit (even though he won’t be collecting it due to the suspension) can’t exceed your family benefit maximum. Your family benefit maximum is somewhere between 150 percent to 187 percent of your husband’s full retirement benefit. This means that 50 percent to 87 percent of his full retirement benefit will be available to be split 50-50 between you and your child. If you are still working and will have your child-in-care spousal benefit reduced by the earnings test, it may be better for you not to apply for a child-in-care spousal benefit to ensure your daughter’s child benefit is not clipped because the family benefit maximum is shared between the two of you. In other words, the sharing of the family benefit maximum is based on the size of the two benefits before any reduction from the earnings test.

​Just to be clear, my answer assumes that​ your ​adult child ​will​ be considered in ​your care. Unless ​your​ child has a mental impairment and lives with ​you​, that’s not a given. ​If your child lives with you and has a physical, not a mental disability, you need to be performing personal care services for he or she to be considered in your care. Also, ​your​ child currently receives SSI, which will be reduced essentially dollar-for-dollar by her Social Security disabled child’s benefit. Both of those factors, in addition to ​your earnings, could affect your decision of when to apply.

Question: I started getting my Social Security checks at 66. I continued to work for a year while my employer paid my insurance. I want to become a part-time independent representative for the same company, which means I will lose the health insurance the company provides.

I am not sure what I should sign up for with Social Security. Should I sign up for Medicare? From what I read, sometimes Social Security may not give the best advice.

Larry Kotlikoff: You should sign up for Medicare. If you wait to sign up, the premiums for the Part B portion of Medicare can become permanently larger once you join up. There is no earnings test after age 66, but what you should consider doing is suspending your retirement benefit and starting it up again at age 70 at a permanently higher level.

Question: I need help in understanding what I may be entitled to when going to the Social Security office. I turned 67 this past January. I am still working and plan on doing so until I am 70. I am currently divorced. I was married to my second husband for more than 10 years. We were divorced when he passed in 2002 at age 57. Can I collect any benefits from his earnings? My last husband (third and last) is 65. We were married for 17 years. Can I collect any benefits from his earnings?

Larry Kotlikoff: It sounds like you have a number of options. But your best option is probably to take your widow’s benefit from your second husband now and then file for your retirement benefit at age 70. Whether or not your total check will actually rise when you reach age 70 will depend on whether you or your second husband had higher lifetime covered earnings.

Question: If my full retirement age is age 66 and I delay beginning benefits, it is my understanding that the benefit increases 8 percent per year up to age 70. Is this increase factored in on an annual basis or on a pro-rata per month basis?

Larry Kotlikoff: It’s a pro-rate monthly basis. But you have to wait until January 1 of the next year to receive this year’s delayed retirement credits. This means that if you forgo benefits in January and start them up again in February, you’ll need to wait for 11 months to collect a higher monthly check. But if you forgo benefits in December and start them up again in January, you’ll get a higher check in January. Yet another nasty Social Security gotcha!

Question: Can my wife apply for full spousal benefits at age 64 even though she is not receiving retirement benefits?

Larry Kotlikoff: No. If she files for spousal benefits at 64 and is eligible to collect them because you have filed for your retirement benefit (whether or not you have suspended its collection), she will be deemed to also be filing for her retirement benefit as of age 64. Consequently, she’ll receive the sum of her reduced retirement benefit plus her reduced excess spousal benefit, where the excess spousal benefit is the difference between half of your full retirement benefit and 100 percent of her full retirement benefit.

If she’s had a decent earnings history, her excess spousal benefit could well be negative. In this case it will be set to zero. To sum up, the most likely scenario is that your wife will end up with a permanently reduced retirement benefit and a reduced excess, not a full, spousal benefit, which could well be zero.