I frequently get questions from soon-to-be retirees who have heard about a "family maximum" that applies to Social Security benefits, and they are afraid that rule will reduce the benefits they are due as a couple.
So, here is the message of this column: The family maximum rules do not apply to a husband and wife getting Social Security benefits all by themselves. These maximum rules only come into play when children are involved. That usually means cases involving children getting benefits on a deceased parent's account. Or it can mean limiting benefits to families of someone getting Social Security disability benefits. But it also can occasionally apply to retirees who still have minor children at home. When this does happen, it's frequently because a retiree has an adult child who has been disabled since birth.
But again, the focus of today's column is the scenario of a husband and wife with no minor or disabled adult children at home. And to repeat, the family maximum rules do not apply to them. Here are questions from readers about this issue.
Q: I am waiting until age 70 to take my Social Security so that I will get 132% of my Social Security benefit. Then my wife, who was a homemaker all her life, will file on my record and she will get 50% of my benefit. So combined, we will get 182% of my Social Security benefit. Our accountant said that will be a problem for us because Social Security rules set the family maximum at somewhere between 150% and 188% of my benefit rate. The actual percentage depends on factors I don't quite understand. The accountant sent me this clipping from what he said is the Social Security rulebook.
"RULES FOR RETIREMENT AND SURVIVOR BENEFITS
The family maximum formula for Old-Age and Survivors Insurance (OASI) benefits is based on a beneficiary's primary insurance amount (PIA). The PIA is a beneficiary's basic Social Security benefit amount before adjustments for retirement age, earnings, and other factors. SSA calculates the family maximum using a formula. Ultimately, that formula yields a maximum for each family that is between 150% and 188% of the worker's basic Social Security benefit, or PIA."
So according to my accountant and this rulebook entry, if our family maximum ends up being less than 182%, they are somehow going to cut our benefits. So now I'm really worried. Why bother waiting until 70 to get increased benefits if they are just going to reduce our checks because of this family maximum business?
A: Don't worry. As I said in the beginning of this column, this family maximum stuff doesn't affect a husband and wife getting benefits. You'll note the rulebook section your accountant sent you refers to a "PIA." That stands for "primary insurance amount," which is essentially your full retirement age amount. That amount can never be more than a 100% rate. You are going to get a higher monthly benefit amount (up to 32% more) because you are delaying filing for Social Security until age 70. But your PIA remains at that 100% rate.
Your wife is going to get a 50% rate. So, the most a husband and dependent wife can get in basic (PIA) combined benefits is 150%. (His 100% PIA rate and her 50% spousal rate.) And that 150% rate does not exceed the lowest family max rate (which is 150%), so a husband and wife can never be subject to the family maximum.
Q: I am taking my benefits at full retirement age. I am married to a woman who hasn't worked very much, so she is going to be getting half of my Social Security. But I also have an ex-wife who hasn't remarried and didn't work very much either, so she will be getting half of my Social Security, too. So, I'm going to get 100%, my wife will get 50% and my ex will also get 50%. That's 200% combined and that exceeds what I've been told is the 150% maximum that can be paid to my family. So how do they make these adjustments to get down to the 150% rate?
A: No adjustments will be needed. Any benefits paid to an ex-wife are just "add-on" benefits. They don't affect the benefits you and your current wife are due, and they also don't affect this family maximum business.
Q: My wife and I both plan to take our benefits at age 70 at the end of the year. I am estimated to get $3,444 per month and my wife will get $3,100. But there are two things we've heard about Social Security that scare us. We've been told there is some kind of maximum that applies to what we will be able to receive, and we've also been told there is a marriage penalty with Social Security that limits what my wife can get to one-half of my benefit rate. Please help us understand this.
A: As I've explained in this column, the family maximum rules do not apply to married couples. And there is no "marriage penalty" associated with Social Security. You mentioned a wife being limited to half of her husband's Social Security. That would be a wife who does not have her own Social Security benefit, or who has a very small benefit on her own record and is therefore eligible to receive a dependent wife's benefit from her husband's account. Those spousal benefits are limited to the 50% rate, but you and your wife are each getting your own retirement benefit: $3,444 for you and $3,100 for your wife. So combined, you will get $6,544 in monthly Social Security benefits.
CORRECTION TO MY BOOK:
Before I finish out this discussion of family maximum confusion, I've got to correct an error I discovered about this topic in my little Social Security guidebook called "Social Security: Simple and Smart." In the "Benefits for Children" chapter of that book, when discussing the family maximum, I gave an example where a retiree took reduced benefits at 62 so that his teenage daughters could claim benefits on his record. And I said that it was his reduced benefit that gets figured into the family maximum computation. But actually, it is his full benefit rate that is used, even though he's getting a reduced amount.
But still, the message of this column remains the same. When we are talking about just a husband and wife getting benefits, the family maximum never comes into play.