A key benefit of Social Security that most people never think about are the payments to survivors following the death of the primary wage earner. These payments can be life-saving for young families, of course, but they can also be very important in determining your retirement income.

One of the first things to understand when you are thinking about when to claim Social Security is that after the death of the higher-earning spouse, the higher benefit will transfer over to the surviving spouse (her own benefit will stop) and continue to be paid for as long as she is alive. Because the higher-earning spouse’s benefit is determined by the age at which he initially claimed his benefit, the higher-earning spouse has direct control over the amount of his spouse’s eventual survivor benefit. He can maximize that benefit by delaying the start of his benefit to age 70.

Lifetime benefits under different life expectancies

Steve and Sarah are a hypothetical boomer couple. Steve was a high earner all his life and will receive a Social Security benefit of $3,000 if he applies for it at his full retirement age of 67. This is his primary insurance amount, or PIA.

If he files for Social Security at 62, he will receive 70% of $3,000, or 2,100. If he delays the start of his benefit to age 70, he’ll receive 124% of $3,000, or $3,720, not counting cost-of-living adjustments between now and then.

Like many boomer women, Sarah had some years where she worked part-time or not at all. Her PIA is $1,600, or a little more than half of Steve’s.

Let’s imagine two outcomes for Steve and Sarah. One is that they ride off into the sunset together and both live to age 95. The other is that Steve dies at age 70 while Sarah lives to age 95. To be honest, Sarah’s early death would have less of a financial impact on Steve—at least from a Social Security planning standpoint—so we’re mainly looking at how to take care of Sarah after Steve dies. It is his life expectancy that’s the key function here because he has the higher Social Security benefit.

Under the first outcome—they both live to age 95—they will receive a total of $2,207,853 if they both apply for benefits at 62, assuming 2.6% annual cost-of-living adjustments and no change in the current Social Security benefit formula.

If they wait and apply at 70, they’ll receive a total of $3,230,498, a difference of $1,022,645. This can be considered the value of Social Security’s longevity insurance—that is, protection for both spouses in case they both live to age 95. (In present-value terms, with a 0% COLA, cumulative benefits are $1,282,710 under the early-claiming scenario vs. $1,716,904 under the later[1]claiming scenario—a difference of $434,194.)

Now let’s look at the second outcome: Steve dies at age 70. After Sarah reports his death, her Social Security benefit will stop and she will begin receiving her survivor benefit, which will equal Steve’s benefit at the time of his death. The amount of this survivor benefit will depend on when Steve originally applied for his benefit. So the value of Social Security’s life insurance to Sarah will depend on that decision.

Under the early-claiming scenario, total benefits with COLAs will be $1,571,252 at Sarah’s age 95, versus $2,238,195 under the later-claiming scenario, a difference of $666,943. (Or, with a 0% COLA, $1,053,460 vs. $1,227,880, a difference of $174,420.)

So the insurance is clearly worth more if they delay. But unlike a traditional insurance policy, they didn’t have to pay anything for this extra insurance. All Steve had to do was delay his benefit. By waiting until age 70 to start his Social Security benefit, he is gaining over a million dollars worth of longevity insurance in case he lives to age 95, plus an extra $600,000 worth of life insurance in case he dies at 70.

The only time the delayed filing strategy would not pay off is if Sarah also dies early. If Sarah were to die at age 70, the delayed filing strategy would cause them to forego $377,625 in benefits they could have received from age 62 to 70. This may be seen as the “cost” of both the longevity insurance (if Steve lives to 95) and the life insurance (if Steve dies at 70). But this cost goes away if Sarah lives past the classic breakeven age of 78. After that, there is no cost to delaying benefits.

The traditional breakeven analysis

Under the traditional breakeven analysis, an individual must decide between two claiming scenarios: start benefits early at a lower amount, or start benefits later at a higher amount.

The breakeven age is the age at which total cumulative benefits from the later-claiming scenario begin to exceed total cumulative benefits from the earlier[1]claiming scenario. If you are comparing 62 to 70, the breakeven age is about 78.

So if you think there is a good possibility that you will live longer than 78, consider delaying your benefit to age 70.

But when you are married, the analysis changes. Then you have to consider the potential life expectancy of the longer-lived spouse. Because Steve’s benefit will prevail regardless of who dies first (because his is the higher benefit), they will want to maximize that benefit. So when determining Steve’s claiming age, it is not necessary to make a guess on Steve’s life expectancy.

What matters is Sarah’s life expectancy. The odds are very good that she will live past age 78. In any case, it is just good risk management to implement the strategy that will ensure financial security in case she does make it into old age.

What does this mean for the couple?

Steve should delay his benefit, even if he has a short life expectancy. In fact, a short life expectancy is all the more reason for him to delay his benefit, because Sarah will be transferring over to her survivor benefit all the sooner.

If Steve dies before he claims his benefit at 70, Sarah’s survivor benefit will include the delayed credits Steve’s benefit had been accumulating up until the time of his death. But if he claims at 62 thinking he might as well get as many checks as he can before he dies, he will leave Sarah with a reduced survivor benefit.

Now, if they really thought Steve might die at 70, Sarah could file for her benefit at 62. This would give her $131,347 in benefits from age 62 to 70, before she switches over to her survivor benefit.

But there is a tradeoff: if Steve ends up living to age 95 (meaning it will be many years before Sarah transfers over to her survivor benefit), they’ll end up with lower total benefits: $2,874,795 if she files at 62 vs. $3,230,498 if they both delay. In this case, where you are considering whether Sarah should file for early benefits while Steve delays, Steve’s life expectancy does matter.