Social Security is an important part of retirement planning both for the parents and the individual with a disability. Family members can claim benefits tied to the primary household earner once he or she begins receiving Social Security retirement benefits; however, there are limits how much the family in total can collect. This article discusses the family maximum benefit, how it works, and how to plan for these limits in retirement.
The family maximum social security benefit is the maximum amount that can be paid on a worker’s earnings record. If the primary household earner begins receiving Social Security benefits at retirement, the spouse, the individual with disability, and others may qualify for so-called “Social Security auxiliary benefits” based on the primary workers earnings. (For the adult child who qualifies to receive Social Security benefits based on the parent’s work record these benefits are referred to as SSDI benefits.)
In most cases, spouses are entitled to receive up to 50% of the primary earner’s benefit at their retirement age or receive their own SS benefit, whichever is higher. Likewise, an adult child with a disability can receive up to 50% of the primary earner’s benefit under the SSDI benefit. The limit comes into play when two or more auxiliary beneficiaries draw benefits off the primary earner’s SS earnings at the same time. The family maximum limit is 150% to 188% of the main earner’s primary benefit amount (PIA). The exact percentage formula can be found on the SSA website.
To illustrate how the formula works, let’s say there is a family of three: a main breadwinner, a spouse, and an adult child with a disability. The spouse and the child have no Social Security work earnings. The primary household earner has a PIA of $2000. Using the Social Security family maximum formula, the family maximum is determined to be approximately $3600 per month or 180% of the primary earner’s PIA.
By themselves, the non-working spouse and the child with a disability could receive $1000 per month in SS benefits; however, because of the family maximum benefit, the family can only receive an additional $1600 above the primary earner’s benefit. In this example, the spouse’s and the individual’s SS benefits are limited to $800 per month each.
Importantly, Social Security applies any SS work earnings of the spouse towards the 50% spousal benefit, so let’s amend our example to say the “lesser earning” spouse based on their work earnings alone would receive $400 per month from Social Security. Because the lesser earning spouse is receiving $400 on their own record, they only can claim $600 per month more from the primary earner’s benefit to raise their total SS benefit up to the 50% threshold ($1000 – $400).
In this new example the spouse by themselves could claim $600 additionally from the primary earner’s benefit. Combining this amount with the individual with a disability’s benefit yields a combined benefit for the spouse and adult child of $1,600, which is the same as the family maximum benefit. In this case, there is no penalty imposed on each beneficiary’s income. To the extent that both spouses have Social Security work earnings, the family maximum may only have a limited or no impact on the total Social Security benefits received by the family.
Note that the family maximum does not apply if the individual with a disability is receiving SSI benefits only, since those benefits are not based on the work earnings of the parent. Also, importantly the family maximum does not apply to ex-spouses who may be drawing off the primary earner’s benefit.
Finally, the family maximum formula is much tighter in cases where the primary earners themselves are receiving SSDI benefits. In these cases, the formula restricts the additional family benefit to 100 to 150% of the primary earner’s benefit [i]
Since special needs families are more likely to be impacted by the family maximum benefit, the key planning tool is to know in advance what the estimated Social Security benefits are for each household member and then determine if the family maximum applies. The PIA for both spouses and individual with a disability can be estimated from the Social Security website.
After the PIAs are known, the family maximum can be calculated. If the combined SS benefit of each household member is less than the family maximum benefit, no penalty is applied. If the total is greater, than the amount of the penalty can be determined, and the adjusted Social Security benefits can be estimated for each beneficiary.
The Social Security benefit maximum only applies in situations where two or more beneficiaries are drawing benefits off the primary earner’s benefit. In many instances, special needs families will have two or more beneficiaries that could be receiving SS benefits from the primary earner’s benefit. These families should plan by estimating what the likely Social Security benefits are for each person to determine if the family maximum applies.
[i] The formula for disabled workers is 85% of the workers’ Average Indexed Month Earnings (AIME) not less than 100% of their PIA or greater than 150% of the PIA. See https://www.ssa.gov/OACT/COLA/dibfamilymax.html