What disability benefits mean for your spouse's Social Security

Q: I have been receiving Social Security disability in the amount of $2,200 and will be 65 in February of 2017. My wife will be 62 in November 2016.  My concern is for her to be able to receive the maximum spousal benefit in the event of my death. Should she start spousal benefits at 62 or wait until full retirement age (FRA)? Her own benefits would be much less than half of mine. — James Farantatos, Raleigh N.C.

A: When a claimant is on a Social Security disability claim, spousal benefits are payable under that claim as soon as the spouse reaches age 62, says David Cechanowicz a senior financial planner with REDW Stanley Financial Advisors.

As you might know, spousal benefits are limited to 50% of your PIA, which would be one-half of your $2,200 disability benefit. What you might not know is that your disability benefit will convert to a retirement benefit when you reach full retirement age (FRA), which is 66 for you, says Cechanowicz.

As for making sure your wife gets the maximum spousal benefit in the event of your death, it’s important to know that survivor benefits replace spousal benefits at the time of death.

“Additionally, the maximum survivor benefit is achieved when a claimant defers claiming to age 70 and accumulates maximum delayed retirement credits,” said Cechanowicz.  “In your case, you could defer to age 70 if you voluntary suspend your claim once you reach FRA.”

Unfortunately, said Cechanowicz, last year’s modifications of the Social Security laws will enable you to suspend benefits and accumulate delayed retirement credits at the cost of your wife losing spousal benefits until the point in time when you restart benefits.

How WEP takes a bite from Social Security check

“If you were to wait until age 70, your retirement benefit should be at least $2,904 per month, without cost-of-living increases,” he says. “All spousal benefits and benefits for all auxiliary beneficiaries are lost during periods of suspension.”

For many families this means that they must choose between current household income and ultimate survivor benefits, says Cechanowicz.

“The bottom line is that for your surviving spouse to claim a maximum survivor benefit, both she and you will have to live without any Social Security benefit from the time you reach FRA and age 70, if you wait that long,” he says. “However, if you simply continue your $2,200 current benefit at FRA, your spouse will be eligible for a $2,200 survivor benefit at the time of your death, assuming she will have reached her own 'widows' full retirement age.”

The question of spousal and survivor benefits gets tricky when you start dealing with early claiming, says Cechanowicz.  Let’s look at them one at a time.

• First, if your spouse were to claim a spousal benefit at age 62, either against a retirement benefit or a disability benefit, she will be subject to a reduction in spousal benefits.  Spousal benefits are calculated on a different schedule than for retirement benefits.    If your wife claimed the spousal benefit at age 62 it would be subject to a 30% reduction of the $1,100 benefit payable at her full retirement age. Her check at age 62 would be $770 per month.
• Next, if your spouse were to claim spousal benefits at age 62 and you were to die one year later, she would be eligible to claim survivor benefits instead of spousal benefits.  However, as a survivor, she would have a unique widow’s full retirement age, which might be different from her regular retirement age.  Widows born between Jan. 2, 1945, and Jan. 1, 1957, have a widow full retirement age of 66. This is important because survivor benefits are also subject to reductions prior to the survivor full retirement age.

“Note that reductions for survivor benefits are different from those for spousal benefits,” says Cechanowicz. “Survivor benefits reduce by 4.75% per year from the survivor’s full retirement age.  Therefore, if you were to die when your wife was 63 years old, the $2,200 retirement benefit you were receiving would be reduced to $1,887 per month to your wife.”

How long will Social Security disability benefits pay?

The solution to all of this, says Cechanowicz, is to “live long and prosper” so that your spouse will never have to be faced with a reduction in survivor benefits.”  “In that case she would get a full survivor benefit that would include all of the cost-of-living increases that were applied to your account during your lifetime,” he says.

One last note. This question brings together so many confusing issues of Social Security claiming.  If you're still confused, it might be worth talking to an adviser well trained in matters Social Security claiming.

Robert Powell is editor of Retirement Weekly, contributes regularly to USA TODAY, The Wall Street Journal and MarketWatch. Got questions about money? Emailrpowell@allthingsretirement.com.