Are the majority of widows and widowers making the wrong decisions regarding Social Security survivor and retirement benefits? Or are they getting limited information regarding the benefit options available? The Office of Inspector General suggests that thousands of widows and widowers may be shortchanging themselves by millions of dollars in a recent report titled “Higher Benefits for Dually Entitled Widow(er)s Had They Delayed Applying for Retirement Benefits.” This article explores that study and several planning issues regarding Social Security benefit elections.
What is Dually Entitled? Social Security provides benefits to retired and disabled workers and eligible dependents and survivors. You may be entitled to retirement benefits based on your earnings starting as early as age 62, full retirement age (65-66 for most), or deferred to age 70. The later you wait, the higher the benefit – deferring benefits from age 62 to 70 is about a 76% larger monthly check. Additionally, a widow(er) may be entitled to a survivor’s benefit as early as age 60. Thus, a dually entitled person could be a widow(er) age 62 or higher – she (he) may be entitled to survivor and retirement benefits. In 2010, about 28% of SS beneficiaries had dual-entitlement status.
What’s the problem? We’re each responsible for contacting SSA to understand our benefits and options, then decide and file for benefits. If you’re eligible for benefits as a widow(er) or surviving divorced spouse, you might be able to switch to your own retirement benefit as early as age 62 (or defer them to as late as age 70), assuming your retirement benefit is greater. SSA is supposed to explain the options so that we can make an informed decision. OIG feels that SSA employee guidance and advice to beneficiaries needs improvement. Based on their random sampling they estimate thousands of widow(er)s have lost more than $130 million in benefits because SSA employees failed to adequately advise widows/retirees of their benefit options.
Furthermore, they estimated that 82% should have delayed filing for retirement benefits, 10% had family members (e.g. children) eligible for benefits, 6% were not eligible for higher retirement benefits and 2% did delay filing for retirement benefits.
Here’s an example they provided. A woman applied for widow’s and retirement benefits in 2011 and was eligible for $1,403 and $1,140 per month, respectively. She’ll get the higher of the two, not both. SSA paid her a combined monthly benefit of $1,403 consisting of $263 (widow) and $1,140 (retiree). However, she could have limited the scope of her application… file initially for the survivor benefit, and later submit her retirement application at age 70. Apparently there was no discussion of such option in her SSA files. She turned 70 in 2015. SSA has paid her about $39,700 from the time she turned 70. Had she deferred taking retirement benefits to age 70, she would have received 25% more. She was underpaid $13,000 by not deferring her retirement.
The key conclusion by the OIG is apparently to talk up deferred retirement elections (age 70) because beneficiaries get more money. Is that the best recommendation for you? I’m not here to critique their study. Perhaps a solution to Social Security’s underfunding problem is telling us all to defer filing for SS benefits until age 70 and hoping we have short life expectancies. However, I do have two closing thoughts specifically as they relate to widows and widowers and generally as they relate to personal financial planning.
- Don’t rush into making big decisions. We share a checklist for executors to help them through a difficult time. It’s intended to help keep things from falling through the cracks. There are many items on the list – the deceased, family, financial, legal, etc. However, “Don’t Rush” tops the list. It’s an emotional time. Hopefully, you have good shoulders to lean or stand on and help you prioritize and handle the pressing issues, and maintain flexibility until things become less cloudy.
- Think things through. Many planning issues are complicated. They’re not limited to choose A or B, and often they’re multi-dimensional. How can analysts of this study conclude that 82% made the wrong decision? Deferring retirement checks until age 70 may have meant higher benefits down the road. How about the survivor who has a short life expectancy, needs the cash flow now (e.g. reduced pension benefits), or is “comfortable” financially now?
Like most things, the best choice for you is “it depends” and your plan’s unique. Good luck.