Pension and death: when and why relatives have the right to receive social benefits of a deceased loved one

Social Security retirement benefits provide a guaranteed monthly income for your entire life. What happens to benefits after death, reports CNBC.

Photo: IStock

"You only get Social Security while you're alive," said Bruce Tannahill, director of real estate and business planning for MassMutual.

Surveys show that retirees tend to claim benefits as early as possible to get the most out of the program.

But financial advisors typically suggest the opposite—wait to claim the best benefit. This way, you get the largest monthly payouts that are potentially available to you.

“People need to consider how important Social Security is when planning their finances,” said Jim Blair, vice president of Premier Social Security Consulting and a former Social Security administrator.

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For example, if you claim retirement benefits at age 62, your benefits are reduced, as is the survivor benefit that becomes available when you die, Blair said. If you delay taking benefits until age 70 (the maximum age until you can defer monthly Social Security retirement payments and see your benefits increase), your survivor benefit will also increase.

What's more, this extra income can help you preserve other assets you may leave behind.

“The rest of your wealth you can pass on to your spouse, your other children and your loved ones,” Tannahill said.

There are several important things to know about what happens to Social Security benefits if you or a loved one dies.

1. There is a lump sum payment in case of death

A lump sum payment of $255 may be available upon death if certain requirements are met.

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For example, a surviving spouse may be entitled to a death benefit if they were living with the deceased person.

If a spouse was separated from the deceased but received Social Security benefits based on the deceased's record, he or she may also be entitled to $255.

If there is no surviving spouse, the decedent's children may be entitled to a payment instead, provided they were entitled to their deceased parent's benefits at the time of their death.

The Social Security Administration must be notified as soon as possible in the event of a benefit recipient's death in order to cancel their benefits. Funeral homes often notify the agency of a death. But it would also be wise to report it to the Social Security Administration, Blair said.

2. Benefit for the month of death must be returned

According to the Social Security Administration, although a lump sum payment may be available upon death, any benefits received by the deceased on or after the month of death must be returned.

However, how this rule applies depends on the time of death.

Social Security checks are paid for benefits received the month before. The schedule for monthly Social Security payments depends on the beneficiary's date of birth and most often falls on the second, third, or fourth Wednesday.

If someone receives a monthly Social Security payment and then dies, the Social Security Administration may not take the money back, Blair said.

But if the beneficiary dies instead and then receives a monthly Social Security check, it may have to be returned.

The Social Security Administration warns against cashing any checks or keeping direct deposits received on or after the month of death.

If the deceased beneficiary was due to receive a Social Security check or Medicare premium reimbursement at the time of death, a claim may be filed with the Social Security Administration.

3. Surviving spouses and others may be eligible for benefits

According to the Social Security Administration, some family members may be eligible to receive survivor benefits based on the deceased beneficiary's income records starting in the month of death.

This may include a surviving spouse age 60 or older.

According to Joe Elsasser, a certified financial planner and president of Covisum, a Social Security software company, when both spouses have applied for Social Security benefits and one dies, the rule of thumb is that the larger benefit continues. , but a smaller benefit does not.

But there can be pitfalls, especially for couples who have been together for years but never married, he noted.

Some states will treat these unions as common-law marriages, which are recognized by the Social Security Administration. However, other states may not have such mechanisms, meaning that survivor benefits will not be available to the living partner if their significant other dies.

Elsasser said that in many cases he would recommend that these couples get married, especially when one member of the couple has a very high Social Security benefit and the other does not. Of course, marriage doesn't always make financial sense for all couples.

Another pitfall may arise, for example, for young widows who remarry at age 59.

“This can be very bad because it could prevent you from accessing widow's benefits from your ex-spouse,” Elsasser said.

If someone remarries after age 60, they are still entitled to survivor benefits from their deceased spouse, Blair said.

Other persons who may be eligible to receive benefits from a deceased beneficiary include:

• A surviving spouse who is 50 years of age or older and has a disability.
• The surviving divorced spouse, if he or she meets certain requirements.
• A surviving spouse who is caring for a child of the deceased under the age of 16 or has a disability.
• An unmarried child of the deceased who is under 18 years of age, or under 19 years of age if a full-time elementary or secondary school student, or 18 years of age or older with a disability that began before age 22.

“Divorced widows' benefits are actually one of the most commonly missed benefits by people because they don't know they're available,” Elsasser said.

For example, if you are 70 years old and divorced 20 years ago, you may not know that your ex has died and you might not think to check with the Social Security Administration to see if your benefit would be higher.

It's important to note that the Social Security Administration will not notify you of available benefits, Elsasser said.

Under certain circumstances, other family members may be eligible to receive survivor benefits, including adopted children, stepchildren, grandchildren, or step-grandchildren.

What else to pay attention to

Plaintiffs may wish to file a restricted application. It is possible to claim a widow's benefit while allowing your own pension to increase, or vice versa, Elsasser said. For example, you could claim a widow's benefit at age 60 and then switch to your own pension benefit at age 70.

Social Security can provide a “benefit matrix” comparing benefit options. The document may show a comparison between your monthly benefit and your survivor benefit.

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“We always tell people that if they want to determine the best option between their own benefit and their surviving spouse's benefit, contact the SSA and get a benefit matrix report that will give you the information you need to make a decision,” said Mark Keener, president of Premier Social Security. Consulting

Social Security won't tell you which strategy will give you the maximum lifetime benefits. Although Social Security can tell you how to get the most benefit on the day of your office visit. But they won't necessarily tell you how to get the maximum benefits. Therefore, it is best to seek more personalized outside advice to determine the best strategy for your situation.

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