Retirement Income Bonus: Kids

You know the gray-haired guy on your block who just retired? The one with the three kids? It's probably not surprising that he is getting monthly Social Security checks, but what might not be as obvious is his kids and their mom are also getting monthly benefits--no matter their ages.

While it’s fairly well known that Social Security pays a benefit to the family members of a worker who has died(1), many folks are not aware that spouses and children of living Social Security beneficiaries are also entitled to income. At the end of 2011, 335,000 children of retired workers were also receiving monthly income from Social Security. Last year, each child who qualified received an average benefit of just over $600 permonth- for a total of $4.6 million- according to the just-released 2013 Social Security Trustees Report.

In order for Social Security to pay a benefit to the child of a retiree, the retiree must be what Social Security calls “fully qualified.” That is, s/he must have earned 40 “credits” of Social Security.(2)

In addition, the child must be unmarried, and either:

• age 18 or younger (up to age 19 if still attending high school full-time), or
• age 18 or older and “severely” disabled prior to age 22

According to Social Security spokesperson Dorothy Clark, if you are entitled to Social Security, so is your kid, provided he or she is your biological child, adopted or a stepchild. In addition, you and the child’s other parent have to be married for a year or longer. And, you must have provided at least half the financial support for that child “during the 12-month period immediately preceding the month [you file] the child’s application.”

For your spouse to also receive a benefit, she or he must be taking care of a child who is under age 16. (If the child is disabled, this parent may qualify to receive benefits even if the child is older than 16.)

There’s a limit to how much Social Security will pay you and your family. This so-called “Family Maximum” generally ranges between 150% to 180% of your full retirement benefit and is based on a rather complex formula. With that said, the folks at Social Security can calculate this for you.

Now let’s get back to that fictitious retiree in your neighborhood. Assume that “Ken,” has retired from his job  late last year. To celebrate his 64th birthday this month, he has decided to begin receiving Social Security retirement income. If he had waited until age 66, Ken would have received a benefit of $2,200 per month from Social Security. However, because he’s started two years early, he only gets $1,906.

His (second) wife, Julie, is 46. She has two children-  Matthew, 12, and Lauren, 15- from her first marriage. Both have been legally adopted by Ken. Kenny, Jr., a product of their marriage, is 6 years old. None of the children is disabled. By Clark’s calculations, the maximum total benefit that can be paid to Julie and the kids is $1,650. After rounding, here’s what Social Security will pay in benefits:

Now you know why Ken always looks so happy.

1. To learn about the qualifications that must be met, visit Social Security’s website. This is a good place to start and check out this publication 

2. You can earn a maximum of four credits per year. This year you will accumulate one credit for each $1,160 in wages (or self-employed income) that you earn. Thus, once you earn $4,640 this year, you have earned your four credits.