Decoding Social Security’s family maximum-benefit rules

Couples aren't affected if no minor children are collecting benefits.

I was trolling through the comments section of some of my recent blogs and I stumbled on a new area of apparent confusion among financial advisers regarding Social Security claiming strategies: Family maximum benefit rules.

These rules limit the amount of Social Security benefits that can be paid each month on an individual’s earnings record. The purpose of this ceiling is to assure that a family will not get considerably more in benefits after a worker retires, becomes disabled, or dies than the family had in earnings when the worker was employed.

Generally, the maximum family benefit is 150% to 180% of the worker’s full retirement benefit. The actual formula for calculating the family benefit is rather complicated, but the details are available on the Social Security website (ssa.gov).

Dependent children up to age 18 (or 19 if still in high school) are entitled to benefits worth up to 50% of the parent’s full retirement age benefit, known as the worker’s “primary insurance amount” (PIA).

In addition, a spouse who is caring for children up to age 16 is also entitled to a benefit worth up to 50% of the worker’s PIA, regardless of the caregiving spouse’s age at the time. Although spousal benefits are normally reduced if claimed before full retirement age, the spousal benefit is not reduced when caring for a qualifying child.

But once the last child turns 16, the caregiving spouse will no longer be able to claim spousal benefits unless he or she has reached the minimum claiming age for retirement benefits of 62.

If your family has reached the family maximum benefit, Social Security will divide your maximum family benefit by the number of family members so each individual receives a reduced benefit. Benefits paid to family members will not lower the wage earner’s benefits.

This crucial worker exception seems to be the source of confusion for many financial advisers.

Several advisers have written to me asking if a married couple who exercises creative claiming strategies such as “file and suspend” or “filing a restricted claim for spousal benefits” in order to maximize their combined lifetime Social Security benefits might run afoul of the family maximum rules.

No. Married couples, where only the spouses are claiming Social Security, needn’t worry about losing any benefits to family maximum restrictions. Remember, the worker is exempt from the family maximum restrictions and it would be impossible for the other spouse to receive spousal benefits that would exceed the family maximum amount.

The family maximum rules only come into play when several family members, usually several minor children and a spouse who is caring for them, all receive dependent benefits on a worker’s earnings record.

When one person becomes ineligible for benefits, benefits may increase for the remaining family members.
For example, as one child turns age 18 and is no longer in high school, benefits to the other children will usually increase up to the family maximum.

However, the remaining children are each only entitled to no more than 50% of the worker’s benefit, and that percentage will not increase.

An adviser recently wrote to me noting that one of his clients, upon reaching his full retirement age later this year, plans to “file and suspend” his Social Security benefits in order to trigger benefits for his wife and two dependent minor children. The client plans to defer his own retirement benefit until it is worth more later.

The adviser asked if the family maximum amount is still applied based on the worker’s PIA even if the worker isn’t actually receiving benefits.

Yes, although the worker plans to defer his retirement benefit, his PIA is still the basis for calculating his wife’s and children’s benefits and they are still subject to the family maximum rules even though the worker is not yet collecting his.

On another note, I wanted to inform my readers that Social Security online services will remain available during the federal government shutdown, but services at the field offices will be limited.

Social Security payments to beneficiaries will continue during the shutdown with no change in payment dates.