When a worker becomes eligible for social Security, other family members may qualify for benefits on that worker's record, too. But there's a limit on how much can be paid on a single record - known as the family maximum - and it can squeeze what a spouse or dependent might otherwise be entitled to.
Although the family maximum can range from about 150% to 180% of a worker's full retirement age benefit, the cap is typically 175%, says Jim Blair, a former district manager for an Ohio Social Security office and a partner at Premier Social Security Consulting, in Sharonville, Ohio. If you have two or more benefits coming off your record, the family maximum will apply, he says. Those benefits could be paid to a spouse, a young child, a disabled child or a dependent parent.
Here's how it works: Let's say a husband claims his $2,200 a month benefit at his full retirement age of 66. His 66-year-old wife could claim a spousal benefit worth half of his benefit. The couple will receive $3,300 a month in Social Security benefits - which falls below their family maximum of $3,850, or 175% of his full benefit.
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But let's say there's a child in the mix. A child under the age of 18 (or under age 19 if a full-time student) can receive a benefit of up to 50% of a worker's full retirement age benefit. The 66-year-old worker would get his $2,200 a month. But paying $1,100 to the wife and $1,100 to the child would bring the family's benefit to $4,400 - and that exceeds the family maximum of $3,850. So, says Blair, after the worker's benefit is paid out, that remaining $1,650 would be split evenly between the spouse and the child. If there were two qualifying children, the spouse and kids would get $550 each. When kids age out of eligibility, the amounts paid to those still qualifying would increase.Note that the maximum dollar limit can differ by beneficiary because the limit is based on a worker's earnings. "The higher your earnings are, the higher your benefit and the higher your family maximum," Blair says.
When the Cap Doesn't Apply
Retirement Report reader Ted Laux of Ithaca, N.Y., wondered what happens if a worker delays taking his Social Security benefit past full retirement age to earn delayed-retirement credits. Laux, 68, says he's worried that if he waits until age 70 to claim, his boosted benefit plus his wife's spousal benefit would cause the couple to exceed their family maximum.
But he can rest easy: Delayed credits don't count in this equation. The family maximum is based on the worker's full retirement age benefit. If a worker with a $2,200 full retirement age benefit waits to 70 to earn an extra 32% in delayed-retirement credits, his benefit would rise to $2,904 a month. But only the $2,200 full retirement age benefit is built into the family maximum equation. Up to $1,650 more could be paid out to a spouse or eligible kids each month.
The family maximum also typically doesn't matter for divorced spouses. Benefits going to an ex who has been divorced for at least two years are not included in the family maximum calculation, says Diane Wilson, a client services adviser for Social Security Solutions, a Kansas City-based firm that advises workers on how to maximize their lifetime Social Security benefits.
Dual-earning couples in which each spouse qualifies for a benefit larger than 50% of the other's benefit are free of this limitation, too. Say both spouses have a $2,200 full retirement age benefit. If they each take their own Social Security benefits at age 66, they would bring in $4,400 a month. If they both delay claiming benefits until age 70, the total rises to $5,808 a month. Either way, the couple's benefits are based on two different earnings records - and the family maximum is moot.
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