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Once again this week we have a question from the public. This time it is regarding a transition from widow’s benefits to one’s own retirement benefit. The question is:
“I just turned 66 and have been collecting widow’s benefits for quite some time. I’ve heard if I file and suspend my own retirement benefits before April 30th, 2016 I maintain the options of either claiming a 32% larger benefit at age 70 OR claim all my suspended benefits as a lump sum prior to reaching 70. Should I do this or will it jeopardize my widow’s benefits?”
We have a few moving parts here so I will cover them one at a time to try to keep things clear.
Delay Filing
1. She can delay filing her own retirement benefit until it reaches its maximum monthly amount at age 70 since the widow’s and retirement benefit buckets are independent. The fact she is collecting a widow’s benefit has no effect on her retirement benefit other than she cannot receive both simultaneously.
File and Suspend
2. It is true that up until April 30th of 2016 a person can file and suspend their retirement benefit and lock in their ability to choose two future options. They can either “un-suspend” at any time up to age 70 and their monthly payments will start as if they had filed at that month, OR she could claim all the suspended benefits as a lump sum, but then her monthly benefit would be as if she had started receiving it at the date of first suspension (today in this story). She cannot get benefit of delayed retirement credits AND receive a lump sum payment. It is a choice of only one.
Jeopardize Widow’s Benefit
3. The last part to her question is critical. Yes, the act of filing and suspended will jeopardize her widow’s benefit. At the time of filing they will convert her widow’s benefit to an “excess widow’s benefit”, which means they will only pay a widow’s benefit to the extent it EXCEEDS her own benefit. If her widow’s benefit is less than her own benefit she will get NOTHING from the widow’s benefit. The act of suspending her own benefit does not change the treatment of widow’s benefits. So in her case, pursuing the option to receive a lump sum at some point in the future will reduce or eliminate her widow’s benefit. Probably not an attractive option. The only way to collect a full widow’s benefit and then switch to a maximized retirement benefit is to delay filing for a retirement benefit until age 70. Once you file for your own benefit the widow’s benefit is in jeopardy.
As of April 30th, 2016 the lump sum payout is gone so this is really just an issue for those folks considering it prior to that date. I hope this clarifies the situation and don’t hesitate to contact us if you have a question about your Social Security benefits.
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