Carrie and I had the chance to take our first adult cruise earlier this month. We sojourned to Bermuda on a swift five-day cruise with good friends – and liked it! I’ve heard very nice things about Bermuda for too long and wanted to see for myself. I had been informed that a cruise is the most cost-effective transportation mode to see Bermuda and it sure was more fun than an airplane ride– at first.
I got to drive a car on the wrong side of the road for the first time, saw the pink sands of Horseshoe Bay (it does have a pinkish hue) and visited the oldest church in the Western Hemisphere founded in 1612! There was so much more history to Bermuda than I had expected and the only regret was having only thirty-six hours to take it all in.
A not-so-small problem arose on the return trip. Before leaving Bermuda, the ship’s captain announced we were heading unavoidably into Melissa, the North Atlantic sub-tropical storm that recently caused major storm surge along the East Coast. We were forewarned to brace ourselves for some rough weather in 24 hours and he wasn’t kidding. We endured fifteen hours of pitching and rolling on the massive boat, just short of glasses and silverware sliding around tables.
I learned it is very hard to sleep at night with constant airline-like turbulence moving your bed all around!
During dinner the night of the storm, I sought to break the tension and joked that Hollywood could make a motion picture about our treacherous voyage, calling it Perfect Storm II. I even suggested that George Clooney could play me in the movie and – and I kid not – the waiter chimes in “well, a chubby George Clooney”. I still tipped the guy only because it was funny.
We survived the great cyclone and would definitely cruise again but have no desire to ride out thirty-foot sea swells and forty-knot winds in the middle of the ocean a second time.
Speaking of surviving, one of the most complex aspects of the Social Security retirement program are the survivorship benefit rules. Social Security survivorship benefits can work like a valuable life insurance policy, providing the surviving spouse with a guaranteed lifetime stream of inflation-protected income.
The fact is that Social Security is often a key source of financial security for widowed spouses. There are about 7.5 million individuals receiving survivor benefits based in part on a deceased spouse's work record and an overwhelmingly number of them are women.
Survivor benefits vary based on the age of the deceased spouse, the survivor’s age and whether there are any minor children in the household. The rules are complicated but important to understand as a key part of your overall retirement planning.
The good news is that a surviving spouse does not need to post their own work record to receive survivor benefits. The key requirement is to have been married for at least nine months to be eligible, which is waived in the event of an accidental death.
At the death of a spouse, the eligible surviving spouse receives a whopping $255 lump sum death benefit from Social Security Administration. If the deceased was receiving Social Security benefits at the time, the cash benefits must be returned that were received for the month of death.
Afterwards, the surviving spouse has a decision to make about how and when to start their survivor benefits depending on their personal profile and circumstances.
If the survivor spouse has reached age 60 and is still unmarried (age 50 if disabled), the person is eligible to start a reduced survivorship benefit equal to 71.5% of the full benefit, increasing to 100% at full retirement age (between ages 66 and 67).
Fortunately, starting your survivorship benefits early is not subject to the same benefit reduction penalty as starting your own and/or your spousal benefits. You can start a reduced survivor benefit at age 60 and then wait to full retirement age or beyond to grow and/or max out the future benefit on your own record.
Still keeping up?
One catch is that early survivorship benefits are subject to the same earned income limits as early Social Security benefits should you start before full retirement age. For 2019, you can generate earned income of just $17,640 before starting to lose survivorship benefits.
If you re-marry after age 60, survivor benefits are unaffected. Likewise, if you’re divorced, unmarried at age 60 and your ex-spouse dies, you can start a survivor benefit on their benefit record so long as you were married for at least ten years. Talk about a last laugh?
Since the spouse with the lower benefit steps up to the higher spouse benefit at death, why not have the higher benefit spouse wait for as long as possible to start their benefits to help out their life partner? I ask this question a lot in our planning practice. I’ve read that for every year the higher earning spouse waits to start Social Security benefits, it adds another 7.3% to their spouse’s survivor benefit.
Which makes it troubling that a ridiculously large number of husbands, many of whom have served as the primary household breadwinner, choose to start their benefits as early as possible - age 62 - thereby whacking their spouse’s future survivor benefit to its lowest possible amount.
There have been studies confirming that husbands by and large ignore the spousal benefit factor when deciding on when to start their Social Security benefits. I leave the commentary about that sad reality to the sociologists.
We preach in our planning sermons about the importance of maxing out survivor Social Security benefits as an effective life and elder care insurance policy.
There’s a whole separate blog note to be written about how survivorship benefits work for surviving parents with minor children; I’ll save that sub-topic for another day.
Until next time, be well….Tim