The inspector general for the Social Security Administration recently released a report that was well-intentioned, but that has sewn confusion among millions of women collecting Social Security widow’s benefits.
What the report said was that a small percentage of widows were not informed by SSA clerks of a provision that could have resulted in them getting higher Social Security benefits in the long run. But if my emails are any indication, many women thought the report said that all widows were getting shortchanged by the government. This is just not true.
The IG’s report was referring to a procedure I’ve discussed hundreds of times in this column: the restricted application rule. This so-called “maximizing strategy” has been all the rage for the past several years among retiring baby boomers. It allows people who are at full retirement age to file for spousal benefits on a husband’s or wife’s Social Security account and then delay starting their own retirement benefits until age 70, at which point they would get a 32 percent credit added to their Social Security checks.
As I’ve also reported many times in this column that the procedure grew out of a loophole in an unrelated Social Security law. It makes a mockery of a well-established legal tenet that says you should not be able to get benefits on a spouse’s record unless you were financially dependent on that spouse. Yet most folks jumping through that loophole have been well-heeled retirees. That’s why Congress has been gradually closing the loophole. It finally gets sealed up in January 2020, so only retirees turning 66 before January 2020 can employ that unintended maximizing strategy.
But it is an entirely different story when it comes to widows and widowers. (To keep things simple and to avoid a lot of awkward “he/she” and “him/her” pronouns, I will be referring only to women getting widow’s benefits. And that’s OK because 95 percent of surviving spousal benefits are paid to women.)
Widows have always been allowed to use this restricted application rule. And the previously mentioned January 2020 deadline refers only to retirees. It does NOT apply to widows.
And there is also another major difference between the strategy as it applies to retirees versus widows. As I said above, a retiree can only use the restricted application rule if he or she waits until age 66 to apply for Social Security. But a widow can employ the rule as early as age 60 — the earliest she is usually eligible for widow’s benefits. In a nutshell, this rule gives widows options that no other Social Security beneficiary has. Let’s look at some examples to explain what I am talking about.
Mary became a widow at age 58. When she turns 60 (assuming she has retired by then), she will have the option of taking reduced widow’s benefits on her deceased husband’s record. At that age, she would get about 70 percent of his basic Social Security benefit. Then she could save her own retirement benefit until 66, when she could switch to 100 percent of her own rate, or even wait until age 70, when she would get 132 percent.
If Mary is still working full time, then she might have to wait until age 66 to start her widow’s benefits (when the earning penalty that applies to people who take benefits before full retirement age no longer applies). At that age, she would get 100 percent of her husband’s benefit. And then at age 70, she could switch to 132 percent of her own retirement rate.
Of course, all of this assumes Mary has a higher retirement benefit to switch to later in life. Because of economic and social circumstances, many women earned less money than their husbands did — meaning they have much smaller Social Security benefits that that of their husbands. So in those cases, there simply is no higher retirement benefit to switch to later on. To explain that, let’s go back to Mary.
Let’s say Mary’s full retirement age benefit is $1,200. And then let’s say her full widow’s benefit rate is $2,200. And finally, let’s assume Mary retires at age 62. Here are her options. She could simply choose to take reduced widow’s benefits. At age 62, that’s an 82.5 percent rate, or $1,815 per month. There would be nothing to switch to later on because 100 percent, or even 132 percent of her own benefit will be less than what she is due on her husband’s record.
But Mary’s other option would be to take reduced retirement benefits at 62. She’d be due 80 percent of her full retirement rate, or $960. If she could afford to live on that for several years, then at age 66, she could switch to 100 percent widow’s benefit, or $2,200. By the way, that 32 percent age 70 bonus that applies to retirement benefits does NOT apply to widow’s benefits. In other words, there would not be any advantage to Mary delaying her widow’s benefits until age 70. The highest rate she can get is the 100 percent rate at age 66.
So now let me get back to the inspector general’s report. That report was highlighting scenarios in which a woman had worked and earned enough money for a substantial retirement benefit on her own record — one in which she could employ the restricted application strategy of saving her own benefits — usually until age 70. And again, the report criticized SSA saying that some women in this situation were not made aware of the existence of the benefit-switching rule.
But the report did not say that all widows were being cheated out of benefits. And it has nothing to do with the vast majority of women, especially as most women do not become widows until later in life — in their 70s or 80s and beyond — long after their Social Security benefits have started.
