As we move on in our Social Security section we need to start thinking about a couple of strategies for taking our benefits.  We wrote in last month's column about how exactly the monthly benefit is calculated and how we can increase the monthly payment by postponing the start date.  In one of the adjoining articles this month I talk about Life Insurance.  Well, if you are married, the SS payments have a survivor benefit that can act as a type of life insurance for the one who is left behind.   

What exactly happens when a spouse dies and both parties were receiving SS pension checks?  The simple answer and the general rule is that the survivor keeps the highest monthly check and the smaller one is eliminated.  In that household that means monthly income drops by up to 50% since instead of two checks there is now only one.  Now maybe expenses dropped when one spouse died-but did they really drop by 30%-50%?  Could it be that the surviving spouse still needs to pay the utilities, the mortgage, the car insurance, real estate taxes, car payments, rent, phone bill etc. even though their spouse just died?  Of course they do.  But now instead of receiving two SS checks they get just one-so it is vitally important to get that one check as high as possible.      

A popular strategy is for the spouse with the highest Primary Insurance Amount (PIA) to wait as long as possible before taking their benefit.  Remember, each year past the Full Retirement Age (FRA) increases the PIA by 8% up until a 32% increase.  So (excluding COLA's which only intensify the effect) if both parties have an equal  $1,000 per month PIA-if one waits until age 70, then the $1,000 will increase to $1,320.   The survivors benefit then is also increased 32% and would be $1,320 (the highest monthly payment) rather than $1,000.

Now, all is not lost to the spouse who waits.  Here is an important point so pay attention!  The spouse who is waiting until age 70 can, in the meantime, apply for and collect the Spouse's benefit.  I would bet a dollar to a dozen donuts that there are folks out there who are waiting until age 70 and are not taking the spouses benefit.  They are simply leaving free money on the table and probably don't even know it; the spousal benefit is a little known feature of your SS benefit. 

Simply, the spousal benefit is 50% of the spouse who has taken, or can take their SS benefit.  So in our example, the spouse who is postponing taking their benefit can apply for the spouse's benefit and receive a check for about $500 per month-and then when they turn 70 convert back to their own PIA-which would be 32% higher than at 66.  (Heck, you don't even have to be married to the other spouse anymore; so long as you were married for at least 10 years before the divorce you can apply for a spousal benefit based on the ex-spouse's earnings.  And the ex doesn't even need to know about it-all that is required is that the ex has reached Full Retirement Age.)   

Here we write of equal PIA's-but we know that rarely happens.  The tactic of postponing and taking the spouses benefit works even better if the one who postpones is the one with higher PIA.  This leaves a larger survivor benefit and higher monthly payments when they turn 70.