Think Social Security is just for the retired? Think again! There’s something here for everyone.
When we think of Social Security, we usually think about a monthly check when we retire. The truth is, the Social Security system offers a lot more than just retirement benefits. There are also benefits if you become disabled, survivor benefits if you die and benefits if you need medical care. All of these benefits offer a valuable safety net for risks that could occur decades before retirement.
Here are some numbers that show the importance of Social Security benefits that you might use long before retirement:
- In 2014 there were nearly 3.3 million children receiving benefits.
—350,000 from a retired parent
—1,634,000 from a disabled parent
—1,245,000 from a deceased parent
- 34% of all Social Security benefits are paid to the spouses and children of retired, deceased or disabled workers.
- 54 years old is the average of a disabled worker
- Just over 1 in 4 of today’s 20 year-olds will become disabled before reaching age 67.
Let’s face it…the risks are real. Social Security helps families who have faced a loss of income due to death or injury.
If you are serious about planning for the future, and protecting against potential risks, you need to understand how these benefits work and when they apply. With this information, you can make the best decisions about how to protect your family.
Two Categories of Protection
So how does Social Security help to manage these pre-retirement risks? There are two categories of benefits available:
- Benefits for the worker
- Benefits for the worker’s family
Both groups of benefits are an important part of your overall financial plan. Let’s examine each individually:
Benefit for the Worker
In additional to retirement income, Social Security provides two other important benefits for the worker: income if you become disabled, and medical coverage.
If you become disabled: Social Security provides income to those who are unable to work due to disability. Depending on your work history, you may be eligible for one of two programs: Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI).
SSDI pays a portion of your pre-disability income, based upon a complex formula.
Eligibility for SSDI is based on your work history and your medical condition. In general, you must have worked for ten year to be eligible for SSDI, but there are multiple exceptions based upon age.
So how much would this disability payment be? There are a few factors that affect it, but generally speaking you can look at your full retirement age benefit on your Social Security benefit statement for a good idea.
If you become disabled, you may also become eligible for Medicare health insurance after 24 months of disability.
Benefit for Worker’s Family
If you die or become disabled, there are benefits that may be available to your spouse and to your children.
Benefits for your Spouse
There are several ways your spouse may be eligible for social security benefits:
- When caring for your child under the age of 16
- If age 62 (60 for survivor benefits)
- If over the age of 50 and disabled (survivor benefits only)
Generally, your spouse will qualify for these benefits if you were married at least 12 months. The requirement for survivor benefits is only 9 months. However, there are multiple exceptions to the 9 month length of marriage requirement.
For more information on the Survivors Benefit, see my article Social Security Survivor Benefits: The Complete Guide to Who Gets What and How to Calculate It.
Benefits for your Children
If you become disabled or die, a child who is your biological child, adopted child, or dependent stepchild is eligible for children’s benefits if the child is:
- unmarried, and
- under age 18, or
- 18-19 and a full-time student in secondary school through grade 12, or
- 18 or older and disabled with a disability that started before age 22.
How Much In Benefits?
Assuming that each family member meets the eligibility criteria for benefits, they would be able to receive up to:
Also see the quick reference chart below.
If you die, your spouse will be eligible for 100% of your Full Retirement Age (FRA) benefit if he or she is:
- at his or her full retirement age, or
- at any age if caring for a child under the age of 16.
Surviving spouse is eligible to file as early as 60, but benefits will be reduced.
If you become disabled, your spouse will be eligible for 50% of your Full Retirement Age benefit at surviving spouse’s full retirement age or at any age if caring for a child under the age of 16.
Spouse is eligible to file as early as 62, but benefits will be reduced.
If you die, your eligible child may receive 75% of your Full Retirement Age benefit.
If you become disabled, your eligible child may receive 50% of your Full Retirement Age benefit.
Benefits for children continue until the child reaches age 18, unless the child marries. Benefits may continue until the child is 19 as long as he or she is completing a secondary school program. Benefits may also continue for children who were disabled prior to age 22.
Family Benefit Maximum
Each qualified family member may receive a monthly benefit payment based on your full retirement benefit amount, but there is a limit to the total amount the Social Security Administration will pay to your family. They refer to this limit as the Family Benefit Maximum. This maximum benefit is not a set number but is about 150 to 180 percent of your full retirement benefit. Where your percentage falls depends on your full retirement age benefit. I’ve included a chart below to help you figure this out for yourself.
There are two notable exceptions to maximum calculation.
1)If you have a divorced spouse who is receiving benefits from your work record, it will not count in the family benefit maximum and it will not affect the amount of benefits you or your family may receive.
2) The 150%-180% range only applies if the payments to children or eligible spouses is made because of your disability benefit. The maximum is simply 150% of your Full Retirement Age benefit.
If a child or surviving spouse is receiving benefits from Social Security, they are subject to the same earnings limitation as everyone else. It should be noted that your child’s earnings affect only their own benefits and not yours or those of any other beneficiaries on your record.
The Replacement Cost of Social Security
I’ll occasionally hear someone say that they would get out of Social Security if that was allowed.Their thought is that they’ll never receive the amount of benefits to equal to the amount of taxes they’ve paid in. That rationale makes sense if you are only considering the benefit you may get in retirement. But the argument falls completely apart when you consider all the other benefits that are provided from Social Security.
If you really wanted to opt out of Social Security, you’d need to:
- Buy more life insurance
- Buy more disability insurance
- Save a few hundred thousand to pay for healthcare costs
- Save a few hundred thousand to create a retirement income
The average couple would need to pay for life insurance, disability insurance and save just over $1,000,000 to replace the income from Social Security.
If you still have questions about Social Security, here are two books that I think are great.
Mike Piper’s Social Security Made Simple
Emily Guy Birken’s Making Social Security Work For You