There are ways to maximize the Social Security benefits that married couples get—for example; it may be highly advantageous for couples to look into the popular ‘claim twice’ strategy.
For this to apply, both spouses have to be at full retirement age and have some cash flow needs—but not enough to claim full benefits. One spouse can then collect 100% of their benefit at the time while the other collects spousal benefits on the same account.
In these particular cases, the spouse that is going to receive the lowest full benefit from Social Security typically takes their full benefits first, the other spouse has to file a restricted application for the spousal benefit.
‘BENEFITS & CONSEQUENCES.’
There are other alternatives—the lower earning spouse can file and suspend when they turn 66—the other person can start collecting spousal benefits at 66 until the couple is both 70 years old or older.
Financial Planners should be prepared to assist clients in noticing these cross-over points and figuring out at what point it makes sense actually to draw on benefits.
With Social Security, Don’t Forget the Kids
Dependent Social Security benefit—things like spousal or survivor benefits for surviving, divorced spouses are often not widely known or understood by most clients…and this information is not often approached at informational sessions.
The people involved, even financial advisors, need to ask about these benefits as the Social Security Administration is notorious about not communicating about funds that are available to families after the passing of a loved one.
However, if your client is old enough to receive Social Security benefits and they have young children—increasingly common with the divorce/remarriage rate—this could affect the strategy and timeline that you need an approach with clients as to when an older parent should start collecting benefits.
Delaying the filing for benefits does happen to increase the client’s benefits in the future, as well as any potential survivor benefits…and waiting may also permanently forfeit children’s benefits that won’t be available down the road if the child ages out of eligibility before the retiree hits 70 years old.
The Federal Government claims that 4.4 million children in the United States are receiving about $2.5B in Social Security benefits every month as the dependents of retired parents, disabled, or deceased parents. These particular benefits are only available to children up through high school age even if only one parent is deceased or is receiving Social Security.
Benefits can be distributed to dependent children until they turn 18, but this can continue until they are 20 if they’re still in high school. Dependent children that are disabled and live at home can continue to receive disability benefits off of a parent’s account until they turn 19…or even beyond if the disability prevents the child from working in adulthood.
A dependent child can receive up to 50% of the parent’s benefits amount—75% of a deceased parent’s benefits. If a child has two parents—one at full retirement age and collecting $2,000 a month in benefits, that child would receive another $1,000 monthly.
CAP ON BENEFITS
There is a cap on dependent benefits. This varies, depending on whether the parent (whose account is supplying the dependent benefits) is simply collecting regularly, or has been disabled and gone through the filing process under Social Security Disability rules. The actual amount of dependent benefits that are available to a family to draw on also depends on the size of the benefit the account holder is receiving.
The maximum available dependent benefits range from 50% to 75% of the primary beneficiary’s benefit amount. For example, if there are two dependent children or even a spouse under 62 that is also receiving benefits for a dependent child under the age of 16, and the total exceeds the family’s benefits limit, the various dependent benefits are equally divided among the recipients. This is important to remember as the total benefits received are capped.
In the example of a deceased parent who was eligible at the time of death to receive Social Security benefits, there is also a family/survivor cap on total survivor benefits of 150%-180% of the deceased spouse’s benefits amount. This could be distributed as follows: 75% each to a child or to each of two children, or even 75% to a child and 75% to a younger surviving parent caring for that child that isn’t eligible to receive their own Social Security/survivor benefits yet. If there happens to be a second eligible child, the total benefits are equally divided with each of these three recipients getting 50% of the deceased’s benefits.