Widowed Before Retirement: Social Security Benefit Claiming Strategies

Shuart, Amy N.; Weaver, David A.; Whitman, Kevin
April 2010
Journal of Financial Planning;Apr2010, Vol. 23 Issue 4, p45
Academic Journal
Financial planners should be aware of Social Security program rules unique to widows approaching retirement. This paper examines these rules and their implications for benefit claiming strategies, complementing recent studies on Social Security claiming decisions. Using present value analysis, we examine the effects of claiming benefits at different ages. Results vary depending on whether a widow is only eligible for a survivor benefit from Social Security or eligible for a survivor benefit and a retirement benefit (based on the widow's work record). When a widow is only eligible for a survivor benefit based on her deceased husband's work record, we find the present value of lifetime benefits is only modestly affected by the age at which benefits are claimed. Benefits claimed at ages before Social Security's full retirement age are reduced using factors specified in the law. These reduction factors are not dependent on interest rates, but, roughly, they maintain the present value of benefits in the face of different claiming ages when a real interest rate of around 3 percent is used for discounting. In dually eligible cases, benefit claiming strategies can be important Usually, claiming one benefit early and waiting to claim the second benefit at the point it reaches its maximum monthly value is a dominant and important strategy. Which benefit should be claimed first in dually eligible cases depends on the ratio of the two basic benefit amounts. We develop cutoffs using these ratios, as a guide to strategies that maximize the present value of benefits.


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