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Protecting surviving spouses from a drop in income

May 04, 2021

Financial professionals bear a tremendous responsibility to their clients.  The one life event that highlights this responsibility more than any other is the passing of a spouse.  At that moment, the surviving spouse should experience all the benefits of your work.  This includes not only the obvious things, like life insurance planning, but also the sometimes-overlooked benefits, like Social Security planning.

A solid financial plan for a married couple must address the reality that when one spouse passes, the survivor will experience a significant drop in Social Security income at a household level.  This is income that in many cases will still be needed to meet basics living expenses.  Accordingly, many couples will want to consider taking steps to maximize survivor’s benefits.

Here’s a quick example:

Blake and Alex are about to retire. At full retirement age,

  • Blake will receive a retirement benefit of $3000 per month,
  • Alex will receive about $1900 per month.

If they both claimed at full retirement age, their total household benefit would be $4900 per month.

If Blake, who’s a couple years older, were to pass away, then Alex would experience a reduction in Social Security retirement income.  The good news is that she would receive Blake’s $3,000 monthly benefit as a survivor’s benefit.  The bad news is that (at the household level) their Social Security income would drop by $1900 or almost 40%.

In our example, we assumed that Blake claimed at full retirement age, but what if Blake had claimed earlier?  I’ve spoken with many pre-retirees over the years who are eager to do just that.  In fact, we know from Social Security data that over 54% of people claim Social Security early.  What is interesting is that many spouses simply don’t understand that this claiming decision can have a major impact on their spouse.

Assuming that Blake’s full retirement age was 66, claiming at 64 would have meant a benefit of about $2,625.  Claiming at 62 would have reduced his monthly benefit to about $2,250.  Those reductions would also reduce Alex’s survivor benefit (although Alex would receive a minimum of 85% of Blake’s Primary Insurance Amount or $2,550).  Is this what Blake intended when claiming early?  Probably not.

Over my years of working with pre-retirees, I’ve noticed a very common phenomenon.  When people are only thinking about their own benefit, the temptation to claim at full retirement age or earlier is strong.  People understand that they may be leaving some money on the table if they live a long time, but they’re willing to take that chance.  That’s why it’s so important to always ask this simple question- “Would you be interested in maximizing your spouse’s survivor benefit?”  It’s amazing how quickly this can change the direction of the conversion.

Planning Opportunities

Let’s assume that Blake did want to maximize Alex’s survivor’s benefit.  He can accomplish this by waiting to claim his own benefit.  For every year past full retirement age he waits to claim, Blake will receive an 8% delayed retirement credit (2/3% monthly, based on his PIA).  For example, by waiting until age 70 to claim, Blake would secure a monthly benefit of $3,960.  That higher monthly benefit would, in turn, become Alex’s survivor’s benefit when Blake passes.  While this doesn’t change the fact that Alex’s Social Security income would be less than they received as a household, the additional $960 per month would certainly help.

Identifying the appropriate Social Security claiming strategy is a great first step in a comprehensive retirement income plan. Once that is done, there are several other things that Blake and Alex’s financial professional could recommend filling in potential gaps. Learn more about Social Security Planning.

For example, the decision to delay Social Security benefits comes at a cost, namely the loss of Blake’s Social Security income from age 66 to 70.  Foregoing $3,000 of monthly income for four years comes to $144,000.  A single premium immediate annuity or a variable annuity with an income rider that allows for a higher payout early in retirement are two ways to replace this lost income.

Life insurance is another way their financial professional can mitigate the impact of reduced Social Security income.  Remember that the reduction of Social Security benefits will occur regardless of who dies first.  Life insurance policies on both Blake and Alex can be used to protect each other by providing a tax-free death benefit that can be used to replace lost Social Security income.

Finally, an annuity with a joint life income option would provide a stream of protected lifetime income that would continue for the life of the survivor.

Evaluating Social Security Options

We’ve used a simplified example in Blake and Alex.  We’ve also been focusing on just one issue: the drop in Social Security benefits at the death of the first spouse.  It’s important to remember that there are many factors that go into the Social Security claiming decision.

The Nationwide Social Security 360 Analyzer® tool is designed to help financial professionals help clients make an informed decision about Social Security.  The Analyzer considers the age of each spouse and their respective Primary Insurance Amounts.  It identifies an optimal strategy based on assumed life expectancies, shows the impact of claiming as early as possible, and allows for two customized strategies.  This allows clients to consider a “what if” scenario, such as claiming at full retirement age.

Here are a few insights we learned when we ran Blake’s and Alex’s information through the 360 Analyzer:

  • If both Blake and Alex were to pass away before age 80, their optimal claiming strategy would be to file for benefits immediately.
  • If their primary goal is to protect the survivor if one spouse dies earlier in retirement (before age 82), then Alex should claim at full retirement age and Blake should file at age 70.
  • If Blake and Alex both live beyond age 85, they can maximize their cumulative lifetime benefit by both waiting beyond full retirement age to claim (70 for Blake, 69 for Alex).

With the help of Nationwide’s personalized Social Security 360 report, Blake and Alex will be able to make a well-informed decision that best addresses their retirement concerns.

When you help your clients implement a retirement income plan that protects a surviving spouse, you are delivering on your most important responsibility as a financial professional.  Help your clients make their Social Security decisions with thoughtful financial planning strategies that can help avoid unintended lifestyle disruptions.


  • Federal income tax laws are complex and subject to change. The information provided is based on current laws, which are subject to change at any time, and has not been endorsed by any government agency.

    Neither Nationwide, nor its employees, its agents, brokers or registered representatives gives legal or tax advice.

    Social Security 360 Analyzer is a service mark of Nationwide Life Insurance Company.