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Did you know there is more to Social Security than meets the eye?

Recent trends suggest that it is increasingly common for individuals or couples to have a child, or children, later in life compared to trends of the past. The underlying reasons are explained by a myriad of social and economic factors, including second marriages becoming more common. All of this can lead to potential wealth management planning and opportunities. One such opportunity involves the decision of when to commence Social Security retirement benefits. For many, it often comes as a surprise to learn that their dependent child(ren) may be entitled to receive benefit payments from Social Security based on the decision to commence their own Social Security retirement benefits. These “Dependent Child Benefit” payments are not just applicable to biological children, but also adopted children and step children. Generally, the child(ren) must be unmarried and under age 18 to qualify for benefits. There are various exceptions applicable for children still in high school up to age 19 or disabled children until age 22. Additionally, spouses younger than age 62 are also entitled to benefit payments based on a retiree’s benefit providing they are taking care of the retiree’s qualifying dependent child younger than age 16 (or disabled).

Typically, the “Other Family Members” who qualify would each be entitled to 50% of the unreduced benefit the retiree would receive at their full retirement age (I.e., 50% of the “Primary Insurance Amount”). All benefits to a family are subject to a “Family Maximum” formula that applies a cap to all benefits being paid. 

Let’s look at an example. Assume a retiree has reached retirement age and they commence their retirement benefit. They are entitled to 100% of their benefit which we will assume is $2,000/m. Let’s also assume the retiree has a 40-year-old spouse with three children under the age of 16. Each child can receive up to 50% of the benefit and the eligible spouse is also entitled to receive up to 50% as a child-in-care benefit.

100% – Retiree Benefit

50% – Spouse

50% – Child 1

50% – Child 2

50% – Child 3

= 300% total benefit to family, before the “Family Maximum” rule is applied

The family maximum would cap the total benefits paid. The reductions would impact the benefits of the beneficiaries; not the benefit of the retiree. In this example, the Family Maximum would be $3,600 (or 180% of the PIA). Benefits would be allocated as follows:

$2,000/m – Retiree Benefit

$400/m – Spouse

$400/m – Child 1

$400/m – Child 2

$400/m – Child 3

= $3,600/m would be the total benefit amount payable due to the family maximum

Also noteworthy, the amount an ex-spouse may collect does not reduce the amount a retiree or other family members receive. 

There are many factors to consider when deciding the right age to commence your Social Security retirement benefits. The age of your child(ren), and the payments they may be entitled to is often overlooked. Regardless of your circumstances, there will be many factors to consider. 

Our Private Wealth Management Team is here to help you explore all financial circumstances unique to you. If you think this is something you or your family may qualify for, please call 518-391-4200 and you will be forwarded to your Private Wealth Manager directly.

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The information herein is considered to be obtained from reference sources deemed reliable, but no representation or warranty is made as to its accuracy or completeness. It is not, and should not be regarded as “investment advice” or construed as a “recommendation” or an offer to buy or sell a specific security.  CIM, LLC does not provide tax or legal advice.  Performance shown or referenced is historical only.  While past performance cannot guarantee future results, it may be useful in comparing alternative investment strategies over the long term.  Performance results include accounts that were managed by another entity.  Performance returns will be reduced by advisory fees and other expenses incurred in the management of your investment advisory account.  No one connected with CIM, LLC can ensure tax consequences of any transaction.  The information contained in this article may not apply to your personal circumstances.  All investments contain some degree of risk, including the potential for loss of principal.  Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation.