Q. I was the higher earner and younger than my recently deceased husband. I just retired and started taking my Social Security benefits at age 62 several months ago. He began taking his benefits a few years ago when he turned 62. Since I’ve started my benefit is there a way I can switch to a widow benefit and let my benefit increase until I’m 66 or even 70? If so, does it make any sense to do so?
A. I’m so sorry for your loss. You should meet with a financial or tax professional knowledgeable in the matters of Social Security to get a personalized answer for your situation. It may be a good financial move to switch from your Social Security benefit to a widow benefit. If you have been receiving your Social Security benefit for less than a year you are in the unique position. Everyone has a one-time opportunity to pay back all benefits received if benefits began within the past 12 months. Doing so will undo the fact that you claimed prior to your full retirement age. This will allow you to begin survivor benefits and then switch over to benefits based on your own earnings at full retirement age or even up to age 70. By delaying your benefits from full retirement age to age 70, your benefit amount will increase by 8 percent a year. There is no advantage to delay benefits beyond age 70.
The following example will not have your personal benefit amounts and will not take any cost of living adjustments into account but it should help you see that you may be much better off financially to take the widow benefit and then switch to your own. Assume full retirement age is 66 for both you and your husband. Assume your husband’s primary insurance amount was $2,000 and yours is $2,500. His benefits were reduced by 25 percent because he began them at age 62 so his monthly benefit was $1,500. Assume your primary insurance amount is $2,500 so by taking your own benefit at age 62 you receive $1,875 a month. If you take a survivor benefit before your full retirement age, the survivor benefit is reduced. A rather complex formula sometimes called the “Double Early Claiming Rule” is used to determine the survivor benefit when the deceased spouse began benefits prior to full retirement age and the widow or widower begins survivor benefits prior to attaining full retirement age. For simplification, assume your reduced survivor benefit will be $1,500. Your cumulative survivor income at age 70 is $144,000 ($1,500/month for eight years). Your cumulative income at age 70 based on your own reduced benefit is $180,000 ($1,875 a month over eight years). By taking your own benefit you are ahead at age 70 but if you live until age 73 you would be better off taking the survivor benefit now and let your retirement benefit based on your own earnings record continue to receive delayed retirement credits. If you switch to your own benefits at age 70 the monthly amount will be about $3,149 and at age 73 your cumulative income will be $257,364. If you take your own benefit at age 62 because it is currently higher than the survivor benefit with this strategy your cumulative income at age 73 will be $247,500.
Note: Last week’s column discussed Qualified Charitable Deductions from an IRA. Please note that North Carolina requires you to add this distribution back as income on your state tax return and then take it as a charitable deduction (helping only those that itemize escape state income on the distribution).
Holly Nicholson is a certified financial planner in Raleigh. She cannot answer every question. Reach her at askholly.com or P.O. Box 97128, Raleigh, NC 27624