When it comes to Social Security, don't forget the kids.
Rob Kron, head of retirement education at Blackrock, says dependent benefits, like spousal or survivor benefits for divorced spouses, are "not widely known or understood" by most people, and are often not brought up at informational sessions.
"People, including advisors, need to ask about them," he says. "After all, it's not like the Social Security Administration is going to mail out a letter saying: 'Dear Dummy, We've got a whole pile of money you could get, if you would call us and ask for it.'"
If a client old enough to receive Social Security benefits has young children -- an increasingly common situation given that many people divorce and remarry -- it could affect the calculus as to when an older parent should start collecting benefits.
As Michael Kitces, a Financial Planning contributor and director of research at Pinnacle Advisory Group, notes, "While delaying filing for benefits does increase the individual's own benefits in the future, along with potential survivor benefits, waiting may also permanently forfeit children's benefits that won't be available down the road" if the child (or children) ages out of eligibility before the retiree hits 70.
DON'T MISS OUT
According to the government, some 4.4 million children in the U.S. receive about $2.5 billion in Social Security benefits every month as the dependents of parents who are retired, disabled or deceased. These benefits are available to children up through high school age even if only one parent is deceased or is receiving Social Security.
Benefits are available to dependent children until they turn 18, but can continue until they are 20 if they are still attending high school. Dependent children who themselves are disabled and who live at home can continue to receive disability benefits on a parent's account until age 19, or beyond, if the disability prevents that grown child from working.
The amount a dependent child can receive is 50% of the parent's benefit amount, or 75% of a deceased parent's benefit. For example, if a child has two parents, one at full retirement age and collecting $2,000 a month in benefits, the child would receive another $1,000 monthly.
CAP ON BENEFITS
However, there is a cap on dependent benefits, which varies depending upon whether the parent (on whose account the dependent benefit is drawn) is simply collecting regular benefits or is disabled and has filed under Social Security Disability rules. The amount of dependent benefits available to a family also depends on the size of the benefit the primary beneficiary is receiving.
In general, the maximum available dependent benefit ranges from 50% to 75% of the primary beneficiary's own benefit amount. If there are two dependent children, or a spouse under 62 is also receiving benefits as a caregiver for a dependent child under 16, and the total exceeds the family benefit limit, the various dependent benefits are equally divided among the recipients. The important point to remember is that the total benefits received are capped.
In the case of a deceased parent who was eligible to receive Social Security, there is also a family cap on total survivor benefits of 150%-180% of the deceased spouse's benefit amount. This could mean 75% each to a child or to each of two children, or 75% to a child and 75% to a younger surviving parent caring for that child but not eligible to receive his or her own Social Security or survivor benefit yet. If there is a second eligible child too, then the total benefits are divided equally with each of three recipients getting 50% of the deceased's benefit amount.
WHO'S ELIGIBLE?
Dependent benefits are available to natural children, adopted children and stepchildren of the Social Security beneficiary.
Dependent benefits are also available, under certain specific circumstances, on a grandparent's Social Security account, to children who are now living with a grandparent. To qualify, the grandparent must have been caring for the child or children as legal guardian for a full year before the benefits begin and must be paying for at least half of the child's living expenses.
Dave Lindorff spent five years as a China correspondent for Businessweek, and has written for The Nation and Salon.com.
This story is part of a 30-day series on Social Security and retirement income strategies.
