By Karen DeMasters
Financial advisor Gary Gilgen says most people don't know that many people in a family, not just the wage earner, can be eligible for Social Security benefits.
Gilgen, as a child, received benefits because his father was disabled. The children, grandchildren and even parents of a worker can qualify under the breadwinner's earnings record, he noted.
Most people know children of deceased workers qualify for benefits. But a child under 18 can also may collect if his parent is entitled to Social Security benefits. With more couples having children at older ages than in the past, it's much more likely that a husband or wife could have a child under 18 when they start collecting Social Security benefits, especially if they begin at 62. These children are among the more than 4 million minors in the United States who are collecting Social Security benefits.
Minor, unmarried children of a living person who is old enough to collect Social Security can receive 50% of the amount of the retiree's benefit until they are 18, or until they are 19 if they are still in high school. A disabled child can continue to collect after age 18.
If the parent would have been eligible for Social Security but is deceased, his or her child can collect 75% of the benefits. A widow or widower of any age may collect an additional 75 percent of the benefit if he or she is caring for a child of the deceased spouse and who is under age 16.
Which dependents are eligible for benefits and when they are eligible are the kinds of questions clients bring up almost every day, says Gilgen, CFP and director of the financial planning department for Rehmann in Troy, Mich. Rehmann is one of the largest accounting and financial services firms in Michigan.
Gilgen has extensive experience in helping people in or near retirement and has come to know the Social Security rules that affect his clients.
All children in a household are eligible, whether they are natural, adopted or step children. A parent can be disabled, retired or deceased for the child to be eligible for benefits. In some circumstances, benefits can resume when the child enters college. Grandchildren of a retired, deceased or disabled worker who are the worker's dependents may also be eligible for benefits.
A situation that is even less well known is that parents over age 62 and are dependent on their adult child for more than half of their support can qualify for benefits if the adult child dies and would have been eligible for benefits, according to the AARP Society Security reference book. Dependent parents of deceased adult children can collect up to 87.5% of the worker's benefit if one parent is claiming and up to 75% each if both parents are claiming benefits.
The Social Security Administration sets a family maximum for retirement and survivor benefits determined by a complicated formula based on the wage earner's benefits. If benefits have to be limited because the maximum is reached, benefits are reduced for each eligible person proportionally.
Benefits are payable whether or not the breadwinner is collecting, as long as he or she is old enough and is eligible for benefits.
Gilgen spends a lot of his time making sure dependents of his clients who qualify for benefits do not miss out because they are unaware they are eligible. Gilgen says he also spends a good deal of time helping clients decide when to start taking benefits.
Once a person accumulates the needed credits and is of retirement age, he or she is eligible for some benefit, although the benefit is larger the more the person earns and the longer he or she works. A yearly earning of $1,130 earns the worker one credit. A maximum of four credits can be earned in a year and 40 credits are needed to collect benefits, so it usually takes about 10 years to earn enough credits to be eligible for benefits once a person reaches retirement age.
Some public employee jobs that have their own pension plans do not participate in the Social Security program, so a worker who has worked in one of those jobs his entire career will not be eligible for Social Security.
For everyone else, the decision at retirement age becomes when to start taking benefits.
"It has to be dependent on the person's health and family longevity, but even that is not infallible," Gilgen says. A client who anticipates a long life may want to wait to take benefits to the maximum age of 70.
Full retirement age varies depending on when a person was born, but for the most part it is about 66 years old. After full retirement age, the benefits increase for each year the person delays taking them. The increase varies, but is 8% per year for all those born in 1943 or later. Benefits increase until the person reaches age 70, then they remain the same.
There is no foolproof way of determining when to start taking benefits. If a person thinks he or she will have a long retirement, delaying benefits until age 70 might be the smartest plan. If there is a reason a person feels he or she may have a short retirement, taking benefits as soon as possible may make more sense.
However, Gilgen says he had a client who was thought to be on her deathbed so she started collecting at the early retirement age of 62. That was 12 years ago and she is still alive and is now relatively healthy, he adds. "But at least she collected for all those extra years, even if it was at a lower rate," he says. The Social Security Administration provides calculators based on when a person would break even by taking benefits starting at different points in the retirement years.
Previously, the administration automatically mailed annual statements to workers age 25 and older and not receiving Social Security or Medicare benefits containing the worker's earnings record and estimated benefit amounts. But because of budgetary limitations, the annual statements are no longer sent out. It is not known when, or if, they will begin sending them again.
Gilgen notes that the Social Security Web site for financial advisors, http://www.socialsecurity.gov/financialplanners is particularly helpful in answering financial advisors' questions.
-Karen DeMasters is an associate editor for Financial Advisor magazine and fa-mag.com. Advisors are welcome to contact Karen with ideas for the Social Security Beat column by e-mailing her at email@example.com.