Understanding the Family Maximum for Social Security Benefits - dummies

Understanding the Family Maximum for Social Security Benefits

By Jonathan Peterson

Copyright © 2015 AARP

Suppose you have two children who qualify for Social Security benefits. Maybe you’re eligible, as well. You can’t simply add up their potential benefits to know how much will be coming in. The SSA imposes a limit on benefits that go to a family based on one person’s earnings record (generally between 150 percent and 180 percent of the breadwinner’s amount, though potentially as high as 188 percent). This is called the family maximum.

If a family maximum applies in your case, the benefits going to all dependents are reduced proportionately to reach a lower total figure for the household. If another family member were to become eligible in the future (based on the breadwinner’s earnings record), the family total would stay the same, and everyone’s benefits would be reduced further. If a child who had gotten benefits turns 18 or 19 and no longer qualifies, the amount going to the remaining family members goes up, as long as the total stays within the cap.

The family maximum may come up when a worker with dependents is getting retirement or disability benefits, or when the breadwinner dies, leaving survivors behind.

The family maximum doesn’t apply to everybody in the family. The benefit going to the breadwinner isn’t reduced. Similarly, any benefits that go to family members based on their own earnings aren’t affected. Also, spousal benefits going to a divorced spouse or a surviving divorced spouse based on the earnings record of his or her former spouse aren’t affected by the family maximum.

The family maximum in the case of disability benefits is slightly different from the cap for retirement and survivor benefits and is limited to no more than 150 percent of the disabled worker’s full retirement benefit. For other benefits, the family maximum may hit up to 188 percent of the breadwinner’s full retirement benefit.

Say a retired breadwinner dies, leaving behind a widow who has reached full retirement age and two elderly parents who depended on him for more than half their support. Without the family maximum, the widow qualifies for 100 percent of his full retirement benefit, and each elderly parent qualifies for 75 percent of the full retirement benefit.

If you add that all up, it comes to 250 percent of the deceased worker’s full retirement benefit. But the family maximum reduces those benefits significantly, so the total adds up to no more than 188 percent of the deceased worker’s full benefit.

The SSA adds four numbers to determine the family maximum for retirement and survivor benefits. (It uses a different procedure for disability.) These are percentages of prescribed dollar amounts that are known as bend points. Although the bend points may change annually, the following exercise gives you an idea how to do the calculation. To do this math, you need to know your full retirement benefit, also known as the primary insurance amount (PIA).

For a ballpark primary insurance amount, go to the Social Security Quick Calculator and plug in your information, including when you reach your full retirement age (currently 66). You then must compute some percentages and add up four amounts:

  • 150 percent of the first $1,042 (bend point) ofthe worker’s PIA, plus

  • 272 percent of the PIA over $1,042 and through $1,505, plus

  • 134 percent of the PIA over $1,505 and through $1,962, plus

  • 175 percent of the PIA over $1,962

  • Your sum equals the maximum benefit amount for your family, based on your earnings.

These dollar figures are for 2014. Check here for the latest information regarding the Social Security family maximum.

Arnold, a well‐paid architect, dies of a heart attack at 56, leaving behind three children and a widow. At the time he died, Arnold had 35 years of covered employment. His full retirement benefit, based on earnings of $80,000, would come to $2,231. Each of his three children is under 16, meaning that without a family cap, each would qualify for a survivor benefit of 75 percent, or $1,673.

In addition, because his surviving wife, Maddy, is caring for the children, she qualifies for an unreduced widow’s benefit of the same amount. If you add it up, their benefits come to $6,693 per month. In this case, however, the family maximum kicks in, limiting the family to $3,905. To correct this, the SSA has to reduce the benefits of Arnold’s survivors. Because Arnold’s children and Maddy receive 75 percent of Arnold’s full retirement benefit (each), their benefits are reduced equally. The maximum family benefit of $3,905 is split between the four of them, giving each $976.

The family maximum on occasion leaves some wiggle room when children’s benefits are involved. This may take place when a child qualifies for benefits on the earnings record of more than one breadwinner. (The SSA calls this dual entitlement.) For example, a child may qualify on the accounts of a mother and father, both of whom have earnings records with the SSA. In such cases, the child gets the higher‐paying benefit. (The same happens with an adult beneficiary who qualifies under two different accounts.)

If more than one child in the family is getting benefits, and each of the children qualifies for benefits through two different workers, the SSA combines the family maximums for the two different accounts. But the combined family maximums are subject to a combined maximum limit. This may create a significantly higher cap, and each child’s benefit may be higher than if he or she was eligible on only one worker’s record.

If you believe that your family’s benefits may be affected by the family maximum, and if you have children in your family who are beneficiaries who qualify under more than one account, point this out to the SSA. It may result in higher payments to your household every month.