I was surprised to hear the strains of “Just the Way You Are” on my local all-news radio station this week. It was the song that my husband and I danced to at our wedding nearly four decades ago.
The music served as the lead-in for a news item about its composer, singer/songwriter Billy Joel. The Piano Man tied the knot for the fourth time over the Fourth of July weekend in a ceremony at his sprawling estate on Long Island. He married Alexis Roderick, 33, a former Morgan Stanley executive. They are expecting their first child this summer.
I have no idea whether Mr. Joel is collecting Social Security benefits. I doubt he needs the money, as his upcoming appearances in Boston and New York City are sold out. But he has reached the magic age of 66, when the earnings cap no longer applies, meaning he can collect Social Security benefits without reduction even as he continues to work.
What Mr. Joel may not know is his soon-to-be born child may be entitled to Social Security benefits, too.
Because Mr. Joel is now 66, he can file and suspend his Social Security benefits, triggering a monthly payment for his minor dependent child worth 50% of his full retirement age benefit amount. In the meantime, Mr. Joel's own retirement benefit will continue to grow, earning delayed retirement credits of 8% per year up to age 70.
I have jokingly referred to this phenomenon of Social Security benefits for minor dependent children of retirement-age fathers as “the Viagra college fund.” Put that money in a 529 college savings plan, and you'll have paid for Harvard. Minor children are entitled to collect Social Security dependent benefits until they turn 18 (or 19 if they are still in high school).
You would be amazed at how many questions I receive about this subject, both in person during Social Security presentations to consumers and financial advisers, and via e-mail from readers of my columns and blog posts. A child may be eligible for benefits if he or she is your biological child, adopted child or dependent stepchild. (In some cases, a child also could be eligible for benefits on his or her grandparents' earnings.)
The high rate of remarriage in America apparently has led to an increase in the number of older parents with minor children. In fact, more than 4 million children receive approximately $2.5 billion in Social Security benefits each month because one or both of their parents are disabled, retired or deceased, according to the Social Security Administration.
“The guidelines for managing the beneficiary's (child's) funds are pretty clear,” Social Security spokesman William Jarrett told me in an email. “The investment should not be invested in a vehicle that involves the payee (usually the parent) in any conflict of interest, the funds should not be kept at home or mingled with the payee's money, and the payee must keep accurate records."
Mr. Jarrett confirmed that funds may be set aside for foreseeable needs, such as the child's education.
“While U.S. Savings Bonds are most common, deposits in other interest- or dividend-bearing accounts is acceptable provided the institution is insured under federal or state law and the account is titled properly,” Mr. Jarrett wrote.
The Social Security Handbook says invested funds must be titled in a way showing that a representative payee holds the property in trust for the beneficiary. The titling must show that the payee has a fiduciary interest for the beneficiary, permits the payee ready access to the funds when needed for the beneficiary's current maintenance and does not permit the beneficiary to have direct access to the funds.
But there are limits to the government's largess. The Family Maximum amount limits the total amount of Social Security benefits that can be collected on a worker's earnings record. The limit varies but is generally equal to about 150% to 180% of the worker's basic benefit. If the sum of the benefits payable to family members is greater than this limit, the benefits will be reduced proportionately for all dependent family members (but not the worker).
In the event of a parent's death, the minor dependent child would be entitled to a survivor benefit worth 75% of the deceased parent's benefit until the child turned 18 (or 19 if still in high school), subject to family maximum limits.
(Questions about Social Security? Find the answers in my ebook.)