Social Security Survivor Benefits – Be Careful

Be careful who you ask, regarding the Social Security claiming rules.  It can cost you money.

Recently I enrolled a Divorced client for her Full Retirement Age, Retirement Benefit.  Part of the data input on the Social Security website is about prior marriages, the time frame, and if the ex-spouse is alive.

In this case, we input the divorced spouse had passed away and noted, the client wanted to be informed of her option to claim her “divorced-spouse survivor” benefit.  She did meet the criteria to qualify. Our thoughts, the survivor benefit would be significantly less than the client’s retirement benefit leading the client to simply collect her own benefit, which was approximately $3,300/month.  Not true!  Always pays to verify!!!

The client was informed by Social Security, her “divorced-spouse, survivor” benefit was only $50 less per month.  The client immediately called me with the SS worker on hold.  I suggested she take the survivor benefit.  That will enable her benefit to accumulate deferred credits between now and age 70, for 3½ years.  Her age 70 benefit will be at least 128% higher, as she will accrue an increase of 2/3rds of 1% per month or 8%/year.  When the client reaches age 70, she can simply switch to her own benefit.  In addition, she does have to wait until age 70.  She can switch over, anytime, and collect the higher accrued benefit.

The worker at Social Security, who was very helpful up until this point, then made the suggestion she go back retroactively and collect a 6-month lump sum check.  Sounds appealing.  He missed 3 important items;

  • The client will be subject to the earnings test and will forfeit most of the 6- month check, after the smoke clears.
  • Her Divorced Spouse Survivor benefit will be permanently reduced as she is applying prior to her Social Security Full Retirement Age.  Taking a retroactive check back 6 months also changes the filing date to 6 months prior.  Any retirement benefit collected prior to your Social Security Full Retirement Age will be permanently reduced.
  • What about the additional income tax impact?????

By the way, the worker at Social Security said I was incorrect.  “The client will NOT be subject to the earnings test as Survivor benefits are not included.”  That was incorrect and he also did not inform the client her monthly divorced-spouse benefit will be permanently reduced.

Click here to obtain our handy document the Social Security Quick Reference Guide for 2024.

Last week continued the trend, Large Growth stocks leading the way.  Value and small-cap stocks (growth and value) were down for the week.

Large Growth helped lift the major indexes higher, with the S&P 500 moving up 1.47%, the Nasdaq 2.29% and the Dow .44%. Small caps fell (2.07%) as impacted by the “higher for longer” interest rate chatter.

Over the pond, foreign stocks rose .17% and emerging markets .65%.

Bond yields drifted lower, with the 10-Year US Treasury finishing the week with a yield of 4.434%. Prior to last Friday’s job report, the yield was down in the 4.3% range.

Last Friday’s job report came in hotter than expected pushing bond yields higher and stocks slightly lower for the day.  We added 272,000 jobs, expectations were for 180K.  Government and Healthcare each added over 40K jobs respectively.

Prior to Friday, many investors were thinking the Fed will cut 2 times between now and year-end.  This week’s inflation data will provide important input into that calculus.

On Wednesday, we’ll hear May’s Consumer Price Index (CPI) report, and also here Fed Chair Powell discuss the decision to hold rates and what the Federal Reserve Board is now thinking.  On Thursday we’ll hear the Producer Price Index (PPI) report. As of now, the market continues to grind higher, on the back of Artificial Intelligence quickly creeping into our every-day lives.  In addition, people are continuing to spend a ton of money.  Michelle and I recently returned from a visit to Rancho Palos Verdes in California.  Plane was at capacity, the resort and restaurants packed, in addition to Dodger stadium being close to a sell-out.  Traffic, forget about it. By the way, Dodger stadium was nice, however Citizens Bank Park is far superior!!

Please feel free to share our weekly retirement blog with friends, family and colleagues and as always, thank you for reading!!

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