Q & A
Am I understanding Social Security Survivor benefits correctly?
Complete Question: With four children under the age of 10, I want to make sure my family is taken care of financially if something were to happen to me, so even though I am only 31 years old and my wife is only 30, I’ve decided to go ahead and purchase life insurance. While reviewing my options, I thought I should also look at what my family will receive in Social Security survivors benefits so I can take that into consideration when choosing life insurance. So I created a mySocialSecurity account and it stated that each recipient is eligible for approximately $1,700 with a monthly family maximum of $4,000. I assume this is indexed for inflation. From what I read, I’m thinking my wife will be eligible for this benefit if she is caring for our child who is under the age of 16 or if she is of retirement age, and my child is eligible for the benefit if he/she is under the age of 18. I want to confirm that I’m understanding all of this correctly because it is more than I expected and will help my family with expenses should I pass away.
Answer: That is great you are thinking about this now and checking your facts; however, I want to caution you on the dollar amounts. Survivors’ benefits are based on a few different factors. Your children and your wife (non-retired caring for a minor) are eligible for 75% of your full benefit. Your statement probably mentioned another amount for your spouse – note that this amount only applies when she is full retirement age because it is 100% of your benefit. If she is 30 now, her full retirement age is 67. However, she is eligible for a reduced surviving spouse benefit at the age of 60, regardless of children.
You mentioned “indexed for inflation”, which is not quite correct. If you look carefully, your statement says, “if you die this year”; therefore, the amounts listed are in today’s dollars. On the other hand, be aware that this is an “estimated” benefits statement. At the age of 31, your estimate is just that…an estimate. The closer you get to full retirement age, the more accurate that estimate will be. Why? The estimate is based on an assumption that you will continue to make your current salary until you retire. If your income goes up or down, that estimate will change.
Other than being aware of these potential issues, it sounds like you have a good understanding of how the survivors’ benefit works.