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How Life Insurance Can Help Replace Survivor Benefits Lost Through the Earnings Test

May 21, 2019 3 min read Kate Ashford

Key Takeaways

  • Below retirement age? The Earnings Test may apply to you.
  • Earn too much? You can lose Social Security survivor benefits.
  • Life insurance can bridge the gap and replace income.


You probably know that Social Security benefits can be an essential source of income, whether you’re collecting payments in retirement or as the survivor of a loved one who passed away. But here’s what you might not know: If you earn too much money, your Social Security benefits may be reduced.

The reason is the Social Security Earnings Test: If you’re under your full retirement age (66–67, depending on when you were born) and earn more than $17,640 (in 2019), your monthly Social Security benefit decreases by $1 for every $2 that your earnings top that threshold in years prior to the calendar year you reach full retirement age. For the calendar year that you do reach full retirement age, if you earn more than $46,920 prior to your birthday, your benefits decrease by $1 for every $3 over that limit. Whether you’re receiving retirement or survivor benefits, it can put you in a tight spot.

For retirement benefits, you face the Earnings Test once you’re eligible to begin receiving Social Security payments at age 62. But if you’re eligible for survivor benefits, it can affect you sooner—and precisely when you may be counting on Social Security to help replace your loved one’s income.

The good news: Life insurance could help you bridge your gap. Read on to learn how.



Survivor benefits: Who’s eligible  

All individuals eligible for survivor benefits would be seriously impacted by the death of a wage-earning loved one. Survivor benefits are available to:

  • A surviving spouse age 60 or older.
  • A surviving spouse (any age) who cares for a loved one’s child who is under age 16 or disabled.
  • An unmarried child of the deceased who is:
    • Under age 18 (up to 19 if a full-time student in secondary school).
    • 18 or older with a disability that began before age 22.
  • A stepchild, grandchild, step-grandchild or adopted child, under certain circumstances.
  • Parents, age 62 or older, who depended on the deceased for at least half their support.
  • A surviving divorced spouse, under certain circumstances.


Cram for the Test

Social Security’s Earnings Test applies to people who are below “normal” retirement age: 66 if you were born in 1943 to 1954, rising over time to 67 for those born in and after 1960. And in some cases, the Earnings Test can decrease or wipe out survivor benefits.

Consider a hypothetical 40-year-old widow with a 10-year-old child, earning $49,834 per year. Theoretically, she’s eligible to receive $1,277 per month—or $15,324 per year—in survivor benefits. But even though her income puts her squarely in the middle class, it fails the Earnings Test—and effectively erases her benefits:

$49,834 income - $17,640 threshold = $32,194


$32,194 ÷ $2 = $16,097

In other words, her survivor benefit would disappear. That puts a young widow with a young child at a big financial disadvantage.


How life insurance can help

Life insurance can help cover the loss created by Social Security’s Earnings Test in a few ways. First, when a loved one passes away, the death benefits from a life insurance policy can replace their earnings and help cover their family’s future expenses. When choosing a life insurance policy, factors that should be considered include the policyholder’s age, future earning potential and expenses that should be covered in the event of their death, such as a mortgage, college costs and day-to-day living.

It’s also important to consider the other things your spouse’s job makes possible, such as health insurance or a 401(k) match—income that would be lost if your spouse dies.

Using life insurance to replace income is especially crucial during a Social Security “blackout period”—the time between when a surviving spouse’s child turns 16 but the surviving spouse hasn’t yet turned 60. (In our hypothetical case, the blackout period spans 14 years—a long time to go without help from Social Security.)

Counting on Social Security survivor benefits to replace income in the event of a loved one’s death can be a gamble. Life insurance can put the odds in your favor—and relieve the financial stress after a loved one’s passing.


What you can do next

Start assessing what kind of life insurance would be right for you. A term policy offers protection for a set period, or permanent insurance, which is designed to last a lifetime and can offer the potential to build cash value. The death benefit from a life insurance policy can help replace your income for your loved ones if you should die early. Please consult your tax and legal advisors for advice pertaining to your particular circumstances.


Kate Ashford is a freelance journalist who writes about personal finance, work and consumer trends. She has written for BBC, Forbes, LearnVest, Money, Real Simple and Parents, among others.


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