03 Jan Maximizing Social Security with ill spouse

Q. My wife is 64 and I’m 66, and we wanted to delay Social Security until 70. I was just diagnosed with pancreatic cancer. How can we maximize the benefits before I die, and for her when I’m gone?
— Planning for the worst

A. We’re sorry to hear of your diagnosis.

This must be a tough time, but we’re glad you’re planning ahead to make sure your wife is financially secure.

The exact benefit your wife will receive and the optimal strategy to maximize it will depend on each of your individual retirement benefit estimates, your age when you pass away, her age when she begins receiving benefits and her life expectancy, said Chadderdon O’Brien, a certified financial planner with RegentAtlantic in Morristown.

For now, we’ll assume your personal benefit is reasonably higher than your wife’s estimated benefit.

The attractiveness of deferring Social Security benefits beyond your defined full retirement age — 66 for each of you — is the delayed retirement credits you receive for waiting, O’Brien said.

“Each year you defer from age 66 to age 70, you receive what amounts to an annual raise of 8 percent,” he said. “Over a lifetime, the total benefits received from Social Security can be greatly increased by deferring.”

Of course, it only makes sense to defer benefits if you expect to live long enough to recoup the forgone benefits you could be receiving today via a larger benefit in the future.

This “break even” period usually takes more than 10 years, O’Brien said.

“Put another way, if you elect to defer benefits until age 70, you would need to live until your early 80s to have accumulated a larger total benefit amount versus starting to receive your benefits at age 66,” he said.

It seems unlikely that you’ll reach the breakeven threshold, but that doesn’t necessarily mean you should claim your benefit right now if your goal is to maximize your wife’s benefit.

When you die, O’Brien said, your wife will be entitled to a survivor benefit based on your earnings history.

“If the survivor benefit is larger than her personal benefit, Social Security will pay her the larger of the two benefits,” he said. “In this scenario, it makes sense to continue deferring your personal benefit so that in the future, your wife’s survivor benefit is higher.”

In the meantime, she can begin claiming her personal benefit now and then step into the higher survivor benefit at some point in the future.

If her personal benefit is larger than yours, the most efficient benefit strategy will be for her to continue deferring her personal benefit to earn the delayed retirement credits, O’Brien said. You can start receiving your benefit now, and after you die, your wife can step into the survivor benefit and continue to let her personal retirement benefit grow. At age 70, she can switch over to the higher benefit based on her earnings history, he said.

The rules around Social Security benefits can be complex, so we recommend you contact a Social Security rep by phone or in person to formulate a plan specific to your situation.

Make sure you also review your overall estate plan, including beneficiary designations on retirement accounts and insurance policies, pension elections, and make sure your will, living will and power of attorney documents are updated, O’Brien said.

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This post was first published in January 2017.