By Ryan Sullivan
Have you ever bought a lottery ticket and then forgotten to check if you’ve won?
Believe it or not, about $2 billion in lottery prizes go unclaimed every year. Many of those winning tickets are worth a meager $1 to $5, but some people have a life-changing prize in their possession and they’re completely unaware.1
Similarly, many people with certain circumstances leave Social Security benefits unclaimed because they’re simply unaware of their options. These benefits may not change anyone’s life to the degree that winning the Powerball® would, but they could help your clients nonetheless.
What we’ll cover:
- Clients don’t fully understand Social Security
- It’s not just retirees who can get Social Security
- Weighing the benefits of taking Social Security early
First, Many Americans Don’t Have a Basic Understanding of How Social Security Works
Social Security can seem pretty straightforward: You reach at least age 62 and start collecting income from the government, based on what you’ve contributed. In reality, it’s much more complicated. Studies show that most Americans know very little about how Social Security benefits really work. In a recent online survey, nearly half of adults (47%) ages 50 and older couldn’t pass a simple true-false Social Security quiz.2 This can lead to an underutilization of Social Security benefits that would be especially helpful in scenarios that allow for it, such as when your clients are raising children later in life. In that instance, when your client files for Social Security, their family may be eligible for additional benefits based on the filer’s earnings history.
Second, It’s Not Just Retirees Who Can Get Social Security
Your client’s child(ren) may get benefits based on their parent’s earnings history when the client starts taking their Social Security retirement benefits.3 A child may get up to half of their parent’s full benefit.
To get benefits, the child must be unmarried and be:4
- Younger than age 18; or
- 18-19 years old and a full-time student (no higher than grade 12); or
- 18 or older and disabled before age 22
- Under certain circumstances, benefits can also be paid to a stepchild, adopted child or a dependent grandchild or step-grandchild.5
You might be thinking, “Wait a second, what sixty-something has kids who are 18 or younger?” Well, actor Richard Gere just fathered a child at 69 years old—but his child likely won’t be concerned about collecting his father’s Social Security benefits. Today, family structures vary more than ever. And sometimes, the “restructuring” of families can make children eligible for benefits based on their parent’s earnings history, even when the parent is still living.
Children Of Retirement-Age Parents Can Receive Benefits
Suppose Joe, a 60-year-old man, married Tricia, a 44-year-old woman with a seven-year-old daughter, Kayla—and Joe adopted Kayla.
When Joe turns 66 and begins taking $1,000/mo. in Social
Security income, at 13 years old, Kayla can receive $500/mo. until the age of 18, totaling $30,000.
Furthermore, the proportion of children living in “grandfamilies” has doubled in the U.S. since 1970, and has increased 7% in the past five years alone. Some 2.6 million grandparents are raising their grandchildren.* If a client has legal custody and financial responsibility for a grandchild, this benefit may provide much needed help.
The age of the children at the time the parent or grandparent begins collecting Social Security is important. If the eligible children or grandchildren are very young, there are more years during which their Social Security benefits could be collected. For example, a six-year-old could feasibly receive benefits through the age of 19. For children who are closer to age 18, the window of opportunity is much smaller.
Grandchildren's Ages Will Affect How Long They Can Collect Grandparents' Benefits
If Jim, a grandfather, begins taking Social Security benefits at the age of 67 in the amount of $1,500, his six-year-old granddaughter Maddie (of whom Jim has legal custody) can receive up to 50% of his benefit until the age of 18. That means she may receive $750/mo. for 12 years, totaling $108,000 in benefits.
Jim’s 14-year-old grandson Matt, on the other hand, could only receive $750/mo. for four years, totaling only $36,000. (Note there is a family benefits maximum discussed below.)
The guidelines are different for children affected by a disability before age 22
If a child is disabled before age 22, he or she can start collecting benefits whenever their parent files for Social Security, even though that may be decades later. (We are talking specifically here about Social Security retirement benefits; the child may also be eligible for supplemental income through other government programs at an earlier age.)
Children With Disabilities May Collect Benefits Into Adulthood
Suppose a child, Eric, was affected by a permanent disability at the age of 12, when his father, Bill, was 40 years old. If Bill starts collecting his Social Security retirement benefits twenty-two years later at 62, Eric, then age 34, can immediately start collecting benefits based on his father’s earning history. This is because Eric was affected by the disability prior to age 22. This additional benefit hopefully doesn’t apply to many people, but it can make a significant difference when it does.
Third, Weighing the Benefits of Collecting Early to Get the Child Benefits
Keep in mind, a child is not eligible for any amounts until their parent starts collecting their retirement benefits. Once they do, that may increase the total amount your client’s family receives from Social Security, and the amounts paid can help cover many typical expenses of raising a child or living with a disability. The tradeoff is that your client may have to start collecting sooner than they otherwise would, so they would need to make this decision carefully to ensure it’s the right choice for them.
Collecting Early Will Reduce Retirement Benefits, But Not Children's Benefits
A 62-year-old grandmother, Lydia, is raising her adopted two-year-old grandchild, Carrie. Although Lydia’s full retirement age is 67, Lydia may decide to start collecting her Social Security benefits early, at age 62, reducing her payment from $1,320/mo. to $930/mo., totaling $11,160/yr.
Even though Lydia’s benefits are reduced, Carrie’s benefit would not be reduced. Instead it would be based on Lydia’s full retirement age benefit of $1,320/mo., making Carrie’s benefit $660/mo.
Taking benefits prior to Lydia’s full retirement age might alleviate some financial strain for Lydia. But if she could wait five more years, until her full retirement age of 67, Lydia’s benefits would increase from $11,160/yr. to $15,840/yr.
Some things to consider:
- As you know, starting benefits prior to full retirement age permanently reduces your client’s benefit and subjects your client to an earnings limit, if still working. They’d also forego any potential increases they’d otherwise earn if waiting until 70 to collect.
- If a child receiving Social Security benefits on their parent’s earnings history is working, their Social Security income would be reduced if they earned more than $17,640 in 2019 (the same limit as a parent prior to their full retirement age.)
- What family members receive in benefits does not reduce your client’s retirement benefit, though there is a family maximum of what can be received. Typically that's from 150 to 180 percent of your client’s full retirement benefit.
- If your client passes away after starting to collect, the survivor rules for children are somewhat different. You can read more about survivors benefits in the Social Security Administration's Survivors Benefits handbook (on pages 2-5, specifically).
- For a minor child, the benefit check is typically paid to a parent for the benefit of the child. Of course, there are rules about how the money is spent and accounted for. For more information see pages 1-5 in the SSA’s Guide for Representative Payees.
Are These Circumstances Too Rare to Worry About?
These situations aren’t terribly common. But for those clients who qualify for these benefits, the added income may be very meaningful. By just knowing these benefits exist, you can be on the lookout for these scenarios and encourage clients to find out if they might qualify.
What to Remember About These Special Situations
First, your clients often don’t know the finer details of Social Security. There are lots of unique situations where they may be able to collect but they’d never know about them. Second, some kids can actually receive Social Security benefits. Third, if a client wants to begin taking Social Security early for the child benefit, they should know that their own benefits could be higher if they wait.
Don’t Let Clients Miss Out on These Social Security Benefits
Like a person with an unclaimed lottery ticket, most clients in these unique situations aren’t aware of the additional benefits they could receive. After all, it’s unusual to think of kids receiving Social Security checks. There are also other unique circumstances that may make clients or their families eligible for more benefits. You can learn more about those in the Social Security Administration’s Retirement Benefits handbook (pages 6-13, specifically).
- View or download the easy-to-understand client piece below
- Be on the lookout for clients who may have children or grandchildren who fall into these special scenarios
- Ask your clients if they know these children could be eligible for benefits
1The 114 missing lottery millionaires, money.cnn.com, 1/12/16
2Social Security Fact Sheet, ssa.gov, 2/11/18
3Half of Americans fail this quiz on Social Security retirement benefits, cnbc.com, 5/15/18
4Retirement Benefits, Publication No. 05-10035, ssa.gov, 1/2018
5Information For Kids And Families, ssa.gov, retrieved 1/28/19
*The Age of Grandparents Is Made of Many Tragedies, theatlantic.com, 6/1/18
This material is general marketing material, and provides only general plan and retirement information. This material is not intended to provide tax, accounting or legal advice. As with all matters of a tax or legal nature, investors should consult a tax or legal counsel for advice. Hartford Funds is not providing any investment advice of any kind (impartial or otherwise) in this material and is not acting as a fiduciary in connection with the preparation or distribution of this material. Investors should consult their own financial adviser for advice or recommendations with respect to the information addressed in this material.