Navigating government benefits like Social Security can often be overwhelming and confusing. Insufficient information and understanding may hinder effective future planning for Americans, potentially leaving financial benefits unclaimed.
Social Security benefits extend beyond retirees to include children, divorced spouses, and individuals with disabilities, provided they meet specific criteria.
As of August 2024, approximately 2.5 million Americans receive spousal benefits, and more than 5.5 million receive survivor benefits. Clarifying the eligibility for spousal and survivor Social Security benefits, the potential amounts they might receive, and the optimal age to start collecting can help individuals maximize these government benefits.
The nuances of spousal and survivor benefits may leave many unaware of the potential amounts eligible spouses can receive. Understanding the rules surrounding survivor benefits is crucial for retirement planning, as overestimations may occur.
To qualify for spousal benefits, one must be at least 62 years old, not have paid into the Social Security system for 30 full-time working years, or have a spouse receiving a higher benefit. The maximum receivable amount is half the spouse’s benefit at full retirement age.
For survivor benefits, eligibility requires being at least 60 years old — or 50-59 with a disability — and having been married to the deceased for at least nine months. Individuals cannot have remarried before age 60. Ex-spouses married for at least ten years, children under 18, or disabled children of any age are also eligible. Survivors can receive 100% of the deceased family member’s full Social Security amount if benefits are delayed until age 67.
Leslie Thompson, CFA, chief investment officer and co-founder of Spectrum Wealth Management, addressed common Social Security misconceptions and provided guidance on strategic financial allocation for workers, women, and retirees. Thompson emphasized the benefits of delaying Social Security until age 67 and the importance of understanding full benefits before that time.
Thompson explained that upon examining their finances, couples might incorrectly assume they can collect both Social Security and a deceased spouse’s survivor benefits. In reality, they are entitled only to whichever amount is higher.
Retirees receiving Social Security may need to reassess their financial strategies, particularly in terms of cash flow and asset allocation. Taking into account reduced income in retirement, Thompson advises careful budgeting to manage spending effectively. Creating a budget based on anticipated retirement income and practicing living within that budget before actually retiring can provide valuable insights into necessary adjustments.
Most retirees may need to reconsider their investment portfolios due to inflation and fluctuating interest rates. Retirees might need to increase exposure to risk to maintain their financial balance and purchasing power. Particularly for women, who tend to have longer life expectancies, it is important to consider how inflation might impact financial longevity and the need for a substantial cash reserve.