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It is not so unusual today for a person eligible for Social Security retirement benefits to have young children. Once the parent files for benefits, a minor child may also qualify for Social Security dependent benefits. The child can be a natural child, an adopted child, or a stepchild.
Each child may receive 50 percent of the parent’s primary insurance amount (PIA) up to the family maximum. The benefit may continue until the child is 18, or 19 if still in high school.
Example: Don is age 66 and has a PIA of $2,400. He has one child, Diane, who is 10. Once Don files for his benefit, Diane may receive a dependent benefit of 50 percent of Don’s PIA, or $1,200. This benefit may continue until Diane turns 18.
Note that it will be necessary for the parent to file for his own benefit in order for the child to receive benefits. Because it is often recommended that the higher-earning spouse delay benefits to age 70 to maximize both the retirement benefit and the survivor benefit for the surviving spouse, this creates a conflict:
- Do you file early and take a reduced benefit so you can start benefits for the child?
- Or do you file at the optimal time for your own lifetime benefit even if it means missing out on a few years of children’s benefits?
We have analyzed this and concluded that the optimal strategy is to delay benefits. Filing at 62 would cause the primary earner’s benefit to be reduced to such an extent that the extra years of children’s benefits would not make up for the loss in lifetime benefits for the worker and his surviving spouse. Remember, when one spouse dies, the couple’s lower benefit will stop, and the higher of the two benefits will continue. The surviving spouse will need a high survivor benefit to maintain their standard of living.
If your child is receiving a benefit based on your record, your spouse may be able to receive a benefit for having a child in care. The child-in-care benefit is generally 50 percent of your PIA until the child turns 16.
There are two issues that could cause benefits to be reduced. One is the earnings test. The other is the family maximum.
Most parents of minor children must continue to work. (There is college to save for, after all.) If a parent files for his benefit before full retirement age, some or all of his benefit — and all other benefits paid on his record — may be withheld for the earnings test. Filing at full retirement age or later avoids this mandatory withholding of benefits. Furthermore, any child-in-care benefits paid to the spouse may be withheld if the spouse works. Not much can be done about this: If the spouse is under full retirement age and works, some or all of the child-in-care benefit may be withheld. However, depending on how the family maximum comes into play, it may behoove the spouse to forego the child-in-care benefit to make more benefits available to the children.
There is a maximum amount of dependent benefits that can be paid on each person’s earnings record. This is called the maximum family benefit (MFB) and it is shown on your Social Security statement. It’s generally about 150 percent to 180 percent of your PIA. Here’s how it works: Your PIA is subtracted from the MFB to determine the amount of benefits that can be paid to family members.
In Part 2 I’ll go over some specific situations you might encounter when you have minor children drawing Social Security benefits.
Mark Singer, CFP® lives in Swampscott and has been in the financial industry for over three decades. If you have any questions contact him at firstname.lastname@example.org. To learn how to maximize your Social Security benefits and enjoy your retirement journey, subscribe to The Retirement Authority YouTube channel at youtube.com/55Retire. The content was developed in conjunction with Elaine Floyd, CFP®.