Calculating Lisa's Survivor Benefits
- Lisa received $24,936 in gross survivor benefits per year after her husband passed away. Here's what she actually takes home, once she accounts for the earnings threshold.
- Lisa'a Income - $60,000
- 2018 Survivor Benefits Earnings Threshold - $17,040
- Lisa's Income Above the Earnings Threshold - $42,960
- Total cuts to survivor Benefits($42,960/2) - $21,480
- Lisa'a Survivor Benefits($24,936-$21,480) - $3,456/Year
When Morgan turns 16 in two years, Lisa loses her eligibility for survivor benefits. She will remain ineligible until she turns 60, unless she becomes disabled. Even after Lisa turns 60, her benefits would be subject to the earnings test until she reaches 67.
On the plus side, Morgan is eligible to receive a $2,078 (in 2018) monthly survivor benefit, based on her father's earnings history, until she turns 18 (19 if she attends school full time).
The earnings test and related calculations can be complicated. For instance, family maximums may apply. In Lisa's case, the estimated family maximum is $4,850 per month. If she had more children, each would be eligible for survivor benefits of $2,078 per month, up to this maximum, until each child turned 18.
Life insurance can help bridge the gap
The proceeds from life insurance can help make up the difference—and can be critical during a “blackout period" when a surviving spouse hasn't yet turned 60, but the children have reached 16, leaving the parent with no access to survivor benefits. For Lisa, whose daughter turns 16 in two years—when Lisa will be 52—this could mean eight years without benefits.
Many of us prefer not to dwell on the likelihood that bad things might happen to us or our loved ones. However, protecting against these risks can help provide peace of mind for you and your family. So given the dramatic impact the earnings test can have on survivor benefits, talk to your spouse about the role life insurance can play, and make sure you have enough coverage to protect your family if something happens to you.