Chris Stein, CFP®
Social Security Reporting Potential Survivor Benefits
A reader from California asks about how Social Security reports potential survivor benefits.
"I know that one huge benefit of one spouse delaying Social Security until age 70 is that the surviving spouse will retain the higher of the two Social Security payments. I have advised my father (the higher wage earner) to delay until next year when he turns 70 and for my mom to start claiming at her Full Retirement Age (FRA), coincidentally also next year. However, when I look at my father's Social Security page, I see the following: 'You have earned enough credits to qualify for retirement benefits. At your current earnings rate, your estimated payment would be: At your current age (69): $2,223 a month. At age 70: $2,404 a month.’ But then it mentions the following for survivors: 'Survivors: You have enough credits for your family to qualify for survivor benefits. If you die this year, certain members of your family may be eligible for these benefits: Your child: $1,366 a month. Your spouse who is caring for your child: $1,366 a month. Your spouse (starting at full retirement age): $1,821 a month.' Shouldn't the spousal survivor benefit read at least $2,223 (his current eligible benefit at age 69 if he claimed today)?"
First of all, the Social Security Benefit Statement that says, "If your father claimed right now, he would get $2,223 at age 69, but if he waits until 70, he'll get $2,404" makes sense. If we do the math, that's 8% higher: the 8% delayed retirement credit he'll be awarded for each year that he delays claiming beyond his Full Retirement Age (FRA). Technically, they reward you with 1/12 of that, or 3/4 of a percent, to give you the benefit amount on a month-by-month basis. But it's easier to think of it as 8% per year.
However, your question is why the estimate for the spousal survivor benefit doesn't contain any increase for the delayed retirement credits. This oversight does lead to some misunderstanding about survivor benefits. People are particularly worried if they haven't claimed yet: if they pass away before claiming, do those delayed retirement credits they earned suddenly disappear? Will their spouse not get the increase in the benefit because they haven't actually turned on the benefit? That is not how it happens.
The Benefit Statement is misleading. You're right: that estimate for the spouse at FRA of $1,821 does not include the impact of the delayed retirement credits. But they will be awarded. Social Security will adjust the survivor benefit to reflect the delayed retirement credits upon your father's passing, even though they're not shown on the statement.
The statement also indicates the value at FRA, but it doesn't indicate how much less will be paid if someone claims the survivor benefit before reaching FRA themselves. It appears Social Security doesn't go into any of those adjustments on the Benefit Statement because it leads them into the weeds with all the different variables, such as claiming age and age at the time of death.
So, they keep it very basic, without adjustments. But your mother will get the delayed retirement credits if your father were to pass away, even if that were to happen before turning his benefit on next year, which is the plan. So, let's say something happens, and he only makes it to 69 and 6 months. If he passes away having never claimed, Social Security will award a survivor benefit to your mom based on what he could have collected had he claimed the day before he passed away.
The government could certainly offer a clearer explanation, eliminating that common misconception in the process. For example, it could be a simple footnote saying, "This benefit may be increased or decreased depending on the following factors," and list the factors. That would remind people that things could raise or lower their final benefit but that the figure provided is only the baseline "pre-adjustment" number as a reference.
I know the Benefit Statement is undergoing fundamental changes right now to provide much more helpful information. It is said to include year-by-year calculations, for example, to help people understand the impact of different decisions they are considering. We'll see if the new version improves the explanation of expected survivor benefits, too.
As soon as I see an official copy of an updated Benefit Statement, I'll break it apart, giving my thoughts on what's nice about the new version and what might be missing. Until then, rest assured that your mother will not have your father's hard-earned delayed retirement credits snatched away. It's the Benefit Statement that is unclear.