• Second, she continues her $1,710 retirement benefits and when she hits her FRA for retirement benefits (66 and four months), she suspends her retirement benefits and begins survivor benefits at $2,000. Based on her record, Reichenstein said she would not have to repay prior benefits. She can then restart her retirement benefits at age 70, which based on her delayed credits would amount to $1,710 x 1.2933 or $2,211, Reichenstein said.
• And a third strategy would be to withdraw her application for retirement benefits. Reichenstein explained that because she had begun her benefits less than 12 months earlier, she has a one-time right to withdraw all her applications to retirement benefits. However, she must repay all benefits, which would be five months of prior benefits at $1,710, and if her husband and children were getting benefits on her earnings record, she also would have to pay those back. She could then begin her survivor benefits of $2,000 and restart her retirement benefits of $2,328 ($1,800 x 1.2933) at 70. So, even though she had to repay the earlier benefits, this strategy, Reichenstein noted, would provide the largest lifetime benefits for her if she lives to age 74 and four months or longer.
So, if the surviving spouse has already begun her retirement benefits, unless she has an unusually short life, Reichenstein noted that it pays for her to either suspend her benefits at (of after) FRA or withdraw her application for benefits.
One other consideration for widows between FRA survivor benefits and age 70 is the widow’s lifetime real benefits (or inflation-adjusted) maximizing strategy if the lower earner dies and the widow has not begun retirement benefits.
In this example, it is presumed that she has a PIA of $2,100 and is age 66 when her husband dies. Her FRA is 66 years and four months and her FRA for survivor benefit is 66. He began benefits after FRA and dies while receiving $1,600 per month. One claiming option is to begin retirement benefits based on her record today of $2,053 per month (which reflects beginning these benefits four months before her FRA) and continue that for the rest of her life.
The other option is to begin her maximum survivor benefits today of $1,600 and switch at 70 to retirement benefits of $2,716 per month, [$2,100 x 1.2933], which reflects 44 months of delayed retirement credits. This option, Reichenstein pointed out, would provide the larger cumulative benefits if she lives a long life. If she lives to 90, Reichenstein pointed out that her cumulative lifetime benefits would be $137,376 higher with the latter claiming strategy. “Break that down and you can see it makes a big difference … that’s real benefits.”
3. Widows younger than their FRA for survivor benefits and her higher PIA spouse dies: In this example, Reichenstein presumed that the widow is age 62 with a PIA of $1,800 and FRAs of 67 for all benefits, when her husband dies. He was receiving $2,000 per month from starting his benefits at or after his FRA, which makes that her maximum survivor benefits. She begins survivor benefits, which would be $1,592, a reduction of 20.4% because she began survivor benefits five years before her FRA for survivor benefits. She could then switch to her retirement benefits at age 70, which would be 24% higher or $2,232 based on her three years of delayed credits.
In another example, her PIA is presumed to be $800. In this case, the maximum she can grow her retirement benefit is 24% higher or $992 because her FRA is 67. But her maximum survivor benefit is $2,000. And while her retirement benefits would only be $560, 70% of her PIA because she claimed these benefits at age 62, Reichenstein said she should stick with that and switch to survivor benefits at 67. Even though she may lose money for a couple of years, Reichenstein said this strategy provides the larger cumulative real lifetime benefits if she lives to at the breakeven age of 79 and eight months. “Most of the time it pays to wait and get the maximum survivor benefits,” he said, adding that the wrong claiming strategy can cost the widow a lot of money.
4. Widows younger than their FRA for survivor benefits and her lower PIA spouse dies: In this case, she is 62 with a PIA of $2,000 and FRAs of 67 for all benefits when her husband dies at his FRA. His PIA was $1,500 but he did not begin his retirement benefits. Reichenstein said one option is for her to begin retirement benefits of $1,400 per month at age 62, [$2,000 x 0.70] and switch at age 67 to survivor benefits of $1,500. The other option is to begin survivor benefits today of $1,194, a reduction for claiming early. She should then switch at age 70 to her retirement benefits of $2,480, which represents three years of delayed credits. This strategy, Reichenstein noted, would provide the larger lifetime benefits if she lives to at least age 72. Her real lifetime benefits at age 90 would be $211,824.