Social Security Claiming: The Case Where Timing Doesn’t Matter Much
Projected lifetime benefits can have relatively small differences even when a surviving spouse delays until age 70.
This is the latest in a series of biweekly articles featuring Social Security claiming case studies drawn from the ALM publication “2024 Social Security & Medicare Facts,” by Michael Thomas with support from Jim Blair, a former Social Security administrator, and Marc Kiner, a planning expert with extensive experience in public accounting.
The Scenario: A Widow With Modest Earnings
Sandy is a widow approaching full retirement age. She must decide if she will take benefits from her own work record before full retirement age and then claim her widow’s benefit at full retirement age — or take widow’s benefits before full retirement age.
The claiming calculus in this situation is made less complex because the benefits on Sandy’s work record will not exceed the widow’s benefit even if she waits until age 70.
In the scenario, Sandy’s full retirement age is 66 and 8 months — she was born in October 1958 — while her full benefit age for the widow’s benefit is age 66 and 4 months. Her actuarially projected death age is just over 87.
Finally, the survivor benefit amount at full benefit age is $2,599, compared with her personal worker benefit of $1,425.
What the Numbers Show
Unlike many prior case studies showing that claiming decisions can vary by hundreds of thousands of dollars of projected lifetime benefits, this case has a fairly modest difference, about $20,000, among the three potential claiming strategies that are on the table.
The least effective approach would have seen Sandy file in January 2024 for a slightly reduced survivor benefit of $2,471. This would give her an anticipated payout of $647,350.
Sandy would get about $5,000 more in projected benefits if she waited for February 2025 to claim her full survivor benefit of $2,599 at age 66 and 4 months.
The best approach, according to the authors, would be for Sandy to have filed for a reduced worker benefit of $1,290 in January 2024. Then, in February 2025, she files for the full survivor benefit, resulting in a total projected lifetime benefit of $667,829.
Bonus Insights: An Important Word on Survivors
Marcia Mantell, a Social Security claiming expert, recently wrote an article for ThinkAdvisor examining a case in which a relatively young surviving spouse is facing a similar set of considerations.
In addition to Mantell running the numbers herself, her analysis also warns advisors that estimates provided by the Social Security Administration in such cases do not provide enough information for an informed claiming decision.
On one hand, it is typically best for widows to delay their biggest benefit until it’s maximized, but even that general rule leaves advisors with dots to connect, Mantell warned.
Additional critical pieces of information include:
- Is she still working? If so, how much does she earn? The earnings limit test applies to both worker benefits and survivor benefits.
- Does she also have a public pension from uncovered wages? That would reduce her own benefit by the Windfall Elimination Provision and her survivor benefit by the Government Pension Offset.
- Has she remarried? If so, at what age?
“Unless she needs to start her best benefit early, it is not a recommended strategy,” Mantell concluded. “Starting her largest benefit now will deliver a substantially smaller benefit throughout her oldest years. Annual cost-of-living adjustments are based on her starting benefit amount, which will be significantly smaller.”
As in Sandy’s case, by waiting to claim her highest benefit at her survivor full retirement age, Mantell’s case can still start her own benefits sooner, then maximize her bigger survivor benefit.
“That would result in an increase of more than $550 a month,” Mantell noted. “It’s worth waiting if possible.”
Credit: Chris Nicholls/ALM