How children reap the benefits of Social Security

Children become eligible when a parent dies or becomes disabled. But there are three important ages to remember: 16, 18 and 22

By Mary Beth Franklin

Dec 5, 2014 @ 12:52 pm EST

Most consumers and financial advisers tend to think of Social Security benefits in terms of retirement income. But the program is a major provider of disability and survivor benefits, too. And not all of the beneficiaries are adults.

In fact, about 4.4 million children receive roughly $2.5 billion each month because one or both of their parents are disabled, retired or deceased. When it comes to Social Security benefits for children, there are three important ages to remember: 16, 18 and 22.

A child can receive Social Security benefits if he or she is the biological child, adopted child or dependent stepchild of a parent who is disabled or retired and entitled to Social Security benefits. Dependent children are also entitled to survivor benefits following the death of a parent who had worked long enough in a job where he or she paid Social Security taxes.

When a parent collects disability or retirement benefits, the child is entitled to up to half of the parent's full disability or retirement benefit. Even if the parent collects a reduced retirement benefit early, the child's benefits is still based on 50% of the parent's primary insurance amount or PIA.

If there is more than one child or a child and a spouse are each collecting dependent benefits, their benefits may be reduced on a pro rata basis if their combined total exceeds the family maximum, which ranges from 150% to 180% of the parent's PIA. Although the disabled or retired worker's benefit is included in the family maximum calculation, the worker's benefit is not reduced if the family's benefit exceeds the limit. Only dependent benefits are reduced.

A child's survivor benefit is worth 75% of the parent's PIA, also subject to the family maximum limit.

In some cases, a child could be eligible for benefit on his or her grandparents' earnings record if the child's natural or adoptive parents are disabled or deceased at the time the grandparent became eligible for benefits and the child is a dependent of the grandparent.

To receive Social Security dependent benefits, a child must be unmarried and younger than 18 or up to age 19 if a full-time high school student.

A disabled child who is older than 18 can receive benefits as long as his or her disability occurred before age 22.

A parent who is caring for a child under 16 may also be entitled to Social Security spousal benefits based on a worker's retirement, disability or survivor benefits, regardless of the caregiving parent's age.

But anyone who receives Social Security benefits before full retirement age — including a caregiving parent — is subject to earnings-cap restrictions. If that parent has a job and earns more than $15,480 in 2014 ($15,720 in 2015), that parent would forfeit $1 in benefits for every $2 over the limit.

Once a nondisabled child turns 16, the caregiving parent's benefits will cease until he or she reaches the minimum age of 62 to be eligible for retirement benefits or minimum age of 60 to be eligible for survivor benefits. But any benefits collected before full retirement ages are reduced.

(For more, see the Social Security Administration help page.)

For some parents, particularly those who started families (or second families) at older ages, deciding how and when to claim Social Security retirement benefits can also trigger benefits for their children.

For example, an older father with children ages 10 and 12 may want to file and suspend his Social Security benefits at his full retirement age of 66, triggering benefits for his two children while his own benefit continues to earn delayed retirement credits worth 8% per year for each year he postpones collecting beyond his full retirement age up to age 70. One must be at least full retirement age to file and suspend benefits.

But part of the decision of when to claim benefits depends on the age of the child.

For example, if a 62-year-old father has a 14 year-old child, the child would be 18 by the time the father turned 66. That would make the child too old to receive dependent benefits (unless he was still in high school). In that case, a father who was no longer working, might want to claim reduced retirement benefits at 62. Even though his benefits would be cut by 25% for claiming four years early, his child's benefit would still be based on 50% of the father's PIA.

At his full retirement age, the father could voluntarily suspend his benefit and earn delayed retirement credits up to age 70. The father's reduced retirement benefit, plus four years of delayed retirement credits, would nearly restore his full retirement age benefit. The math works like this: .75 x 1.32 = .99.

(Questions about Social Security? Find the answers in my ebook.)

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