When a spouse dies, it’s not just emotional sacrifices that can shake up a family. For many widows and widows, the financial blow is equally devastating. And it often comes from Social Security, a place that is amazing.
Unless you know the rules, a spouse’s death can reduce your household income by 30% to 50%. Worse, that decline in income is often combined with tax cuts. This is a one-on-two punch known as the widow penalty, and most people don’t see it coming.
These types of surveillance are not uncommon. In fact, they are much more common than most people notice.
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Survivor benefits come with complex rules, and many widows are never said to have a better option.
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This is an example of how much it costs.
How Diane discovers she qualifies for a higher profit
At a recent Social Security workshop, I met a woman named Diane. She was 75 years old, widow, and had collected her social security benefits for over a decade.
Like many widows, she thought the amount she received each month was merely something she was entitled to.
However, after the session, Diane asked several follow-up questions and found that she was in fact entitled to the much greater survivor’s benefits based on the records of her late husband.
She received just a few $1,000 a month, but her survivor benefits should be close to $2,400 a month. An increase of $1,400 a month or $16,800 a year.
Over her expected lifetime, the difference totaled over $213,000.
Bad news? She missed out on more than $84,000 in income between the ages of 70 and 75. Is it good news? By revealing the opportunity and switching, she left for her lifetime, leaving behind an additional $1,400 a month in line with inflation.
A survey from United Income found that retirees leave more than $3.4 trillion on the table by asserting profits at suboptimal times. Research shows that at an ideal time only 4% of Americans file.
This means that 96% are missing out, and widows are particularly vulnerable.
Step No. 1: Plan ahead of the benefits of Social Security survivors
Widows are certainty for most couples. When one spouse dies, income drops dramatically, but taxes often do not.
Surviving spouses will be filed jointly and thus as a single taxpayer. This is a shift that can push them into a higher bracket and cut the standard tax credit in half, even if income drops.
result? Widows can suddenly pay taxes on lower income, especially at the required minimum distribution or Medicare surcharge. And if that income depends on higher Social Security benefits, reductions can be catastrophic.
That’s why married couples need to think ahead. Who has a higher profit? Does it make sense to delay making claims to maximize the benefits of survivors?
I once spoke to a 72-year-old man named Jerry.
He didn’t need the money at the time, but he didn’t realize that his choice would reduce the profits of the survivors that his wife would one day become his go-to — $1,700 a month. That’s a difference of $204,000 over a decade.
Step No. 2: Avoid the most common social security mistakes for widows and widows
Most mistakes come from three issues.
It’s too complicated. A combination of filings that could potentially exceed 500 for couples makes people often copy what someone else did. Agent representatives are not permitted to provide personalized guidance. They can handle requests, but it doesn’t help optimize it. Many advisors skip it. Most advisors are not paid for social security plans and focus on other areas, but failing to optimize profits can derail a good plan.
Understanding the survivors’ benefits rules is important. The widow can claim as early as 60 years of age (or 50 years of age for disabled people) and can switch between her own interests and the survivor’s interests.
If you don’t know that the option exists, you may never take it – and that may mean losing the number of six people.
Step No. 3: Run numbers to optimize social security survivor benefits
Too many people treat social security like a simple yes or anything question. However, the smartest approach is to model different scenarios.
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What happens if one spouse adopts Social Security early and the other spouse is behind? What is the impact on survivors’ benefits? About taxes? About drawing down from savings?
We recommend a three-stage planning process.
Organize puzzle pieces. Know your retirement income sources, how they are taxed, and when they are available. Consider the status of your household. Whether you’re married, divorced, widowed or single, your strategy depends on your status. Model trade-offs. Perform mathematics. The difference between Strategy A and Strategy B could be the number six.
Widows and widows run the risk of making particularly expensive mistakes, as survivors’ benefits begin earlier and can be switched later. Many aren’t.
As a result, Diane almost lost more than $200,000. And why does Jerry’s wife receive a small check for the rest of her life?
Social security is too important to misunderstand. When the time comes, aim to be at 4% to make it right. Because when you lose your partner, the last thing you should lose is your financial trust.
This information is for educational purposes only and does not constitute an individual financial, tax, or legal advice. Consult a qualified professional about your specific situation.
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This article presents and presents the opinions of contributors, not Kiplinger’s editorial staff. Advisor records can be viewed in SEC or FINRA.
