Q: My cousin is 63 years old. Her late husband was was collecting Social Security when he died at age 65 in January 2011. She has contacted the Social Security Administration about collecting on his Social Security until she turns 66, when she will be entitled to collect her own full benefit based on her work record.
They told her she couldn't collect on his Social Security because she is still employed.
Is this correct?
I thought that she was entitled to collect a benefit on her deceased spouse's Social Security. --JO via email
A: You're right. Your cousin was either misinformed or she misunderstood what she was told. Having a job doesn't disqualify her for a survivor's benefit; but depending on her annual salary, she may be unable to collect it until she turns 66.
Before discussing her best course of action, let's recap the rules:
A widow or a widower is entitled to a survivor's benefit based on her/his deceased spouse's work record. (Divorced people who were married for ten years or more and haven't remarried are also entitled to this survivor's benefit when their former spouses die.)
You forfeit this benefit if you remarry before turning 60. If you remarry after 60, you can keep it.
Your maximum survivor's benefit is 100% of what your deceased spouse would receive if he or she were still alive. In other words, if a man was getting a reduced benefit when he died because he filed for Social Security before his full retirement age, that reduced amount is the maximum his widow can get. And he was receiving a bigger benefit because he postponed taking Social Security until after his full retirement age, that's what she'll get.
The earliest you can start collecting a widow or widower's benefit is age 60. But to get your maximum survivor's benefit, you must delay collecting until your own full retirement age, which in your cousin's case is 66 years old. At age 62, she can only receive 81% of her deceased husband's benefit.
Clear so far?
Then let's move to your second assumption, which is that your cousin can collect her widow's benefit at 62, and then switch to her own benefit at her full retirement age.
You're right about that, too! It's a wrinkle in the rules that even some Social Security staffers don't know about.
If you apply for Social Security before reaching your full retirement age while your spouse is alive, your application automatically applies to both your own benefit and your spousal benefit -- and you get the larger of the two. You can't take one and postpone the other.
But a widow or widower can do just that: At 62, your cousin can collect 81% of her late husband's benefit, and postpone taking her own benefit so that it keeps growing. Or she can decide to take her own reduced benefit now -- at 62, she'll get 75% of what she'd get at age 66 -- and switch to a 100% survivor's benefit when she turns 66.
The best choice obviously depends on the relative dollar amounts involved.
But despite all of the above, any application for Social Security can be affected by the amount you earn until you reach retirement age. Your cousin's job doesn't disqualify her for a survivor's benefit, but her salary might prevent her from collecting it.
Until your full retirement age, you can't collect Social Security if your earnings exceed an annual limit. In 2011, you forfeit $1 of benefit for each $2 you earn above $14,160. Let's say your cousin's survivor benefit is $1,000 a month, or $12,000 a year. If she earns $38,160 a year -- $14,160 plus $24,000 -- she forfeits the entire $12,000 benefit until she turns 66.
In the year that you turn 66, you forfeit $1 of benefits for each $3 you earned above $37,680 prior to your birthday. Starting with your birthday month, you're home free. You can collect your full Social Security benefit regardless of how much you earn.
If your cousin's salary doesn't bar her from collecting a survivor's benefit at this time, she should go back to the Social Security Administration and ask them to revise their answer. It wouldn't be the first time an applicant has been misinformed. (I've received letters from widows who were wrongly told they weren't entitled to more than a $250 'burial' payment!)
If she's earning above the annual limit, she should consider an alternative strategy:
She could postpone her application for the survivor's benefit until age 66, and switch to her own benefit at age 70. As I've explained in other posts, your own benefit grows 8% a year for each year you delay taking it between ages 66 and 70. At 70, your cousin's benefit based on her own work record will be one third bigger than it is when she's 66.
Please send your questions to Lynn@LynnBrennersFamilyFinance.com. I'm sorry I can't respond personally to every email. Questions are only addressed online.
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