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Practice Management

This government benefits program offers a significant safety net to surviving family members. Advisors should be sure to know all aspects of this vital help.

This Practice Management article is intended for financial advisors only (registered representatives of broker/dealers or associated persons of Registered Investment Advisors).
 

Vanise Terry was just 27 years old when her husband died. A stay-at-home mom with a two-year-old daughter, she had depended on her husband’s income. Fortunately, mother and daughter received Social Security benefits for the next 14 years, until Terry remarried last year. Her daughter Olivia will collect benefits until her 18th birthday.

The benefits were crucial to the family’s solvency. Yet many planners are unfamiliar with Social Security’s robust dependent benefits, since they are more typically seen as merely a source of retirement money for workers. Indeed, children, grandchildren, spouses caring for children, and parents of deceased workers may qualify for Social Security aid. Advisors should take time to study the various ways that families can benefit from this federal assistance.

Benefits for Children
Among the survivors of deceased workers, children are the most common recipients of these benefits, with 4.4 million youth receiving them in 2012, according to the Social Security Administration.

A child may qualify for Social Security benefits as a survivor of a dead parent or as the offspring of a living parent who is old enough to be collecting retirement benefits.

To qualify, the child must be unmarried; under age 18, or under 19 if enrolled in secondary or elementary school; and a dependent either by birth or adoption.

If a worker is alive and collecting retirement benefits, a dependent child may receive as much as one-half of a worker’s retirement-age benefit. If the worker is dead, the child can receive up to 75% of the worker’s benefit, calculated as a percentage of the benefit that the worker would have received had he continued earning wages until retirement.

Every child in a family may qualify for benefits, although Social Security applies a family maximum to the total amount of dependent benefits that a family can receive. The maximum ranges from 150% to 180% of deceased workers’ full retirement benefits. The precise amount will be calculated by the SSA at filing time and is based on the worker’s qualifying benefit. The maximum will reduce each recipient’s benefit proportionally to stay under the limit.

Help for Grandchildren and Spouses
Grandchildren may also qualify for benefits under certain circumstances. If both of Olivia’s parents had died, for instance, and she became dependent on her grandparents, the child could have received benefits based on the grandparents’ Social Security work history. Great-grandchildren, however, do not qualify for these benefits.

Terry, Olivia’s mother, collected benefits because she was caring for a young child of a deceased worker. To continue to receive aid, surviving spouses cannot remarry and must not qualify for retirement benefits based on their own work histories, or collect survivor benefits based on their deceased spouses’ contributions. Terry qualified for up to 75% of her deceased husband’s benefit—the same percentage as did her daughter. When she remarried in 2015, this benefit ended.

Advisors should take care not to confuse the Child In-Care spousal benefit with common spousal benefits. With the latter, a retired individual collects money based on the work history of a living spouse. The status of children has no bearing.

Even Workers' Parents May Qualify
Sometimes parents of working children can qualify for Social Security benefits based on a son’s or daughter’s work history. One parent may receive 82.5% of the deceased person’s benefit and two parents can receive 75%. To qualify, parents must be 62 or older, not collect benefits based on their own work history, and have been dependent on the worker when he died.

Social Security provides dependent benefits that can create a significant safety net to family members. Advisors should be sure to take advantage of this vital help.

—By Paul Norr

Paul Norr, a financial planner in Thousand Oaks, California, writes about retirement and planning issues. 

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