Social Security Survivors Benefits - what's the catch?

[ender]

As someone with a kid and the sole income earner, I have been investigating how much life insurance we need.

In doing so I have yet to find a single resource online discussing how significant Social Security is in this regard if I were to die - my wife and kid would both get ~2.2k a month until the kiddo is 16. It looks like it caps out around $5.2k a month, but still. That's a ton of money a year!

It feels like this is a massive benefit as far as life insurance goes.

Why doesn't this get talked about? ssa.gov makes it look nearly guaranteed, is it hard to actually receive somehow?

[minimustache1985]

My dad passed when my sister was 17.  She only got it a few months, but I don’t believe the process was at all difficult.  My mom didn’t get anything during that time, though in retirement her SSA based on him since his income was always substantially higher.  I’m unsure if she would have gotten additional monthly $ had my sister been under 16- that doesn’t really make sense to me as a minor is a minor, but that doesn’t mean it couldn’t be the case.

[Cranky]

I think the spousal support does cut off when the youngest child turns 16 or 17, which can be a shock for some families.

The catch, such as it is, is that it isn't a lump sum that can be used to pay off mortgage or other debt or pay for college.

[cchrissyy]

IDK why it's not more well known and appreciated.  I don't think there's a catch.

Maybe people don't feel like it's much money. When thinking of the monthly figure and not the grand total maybe it sounds like "just a little help". In contrast to 6 figures of life insurance paid at once where people talk of paying off the house and college and sometimes not having to work anymore.

[Paul der Krake]

I talk about this regularly, basically every time there is a thread on life insurance.

My cynical take on this is that it doesn't get talked about because there is no incentive for anyone to advertise it. The insurance industry isn't in the business of telling people not to buy their products, just like Amazon isn't in the business of pointing to public libraries.

The federal government isn't exactly great at advertising in general, but morbid/complex topics even less so.

The biggest "catches":
- you must be married (girlfriends/boyfriends don't get anything)
- you must have a child (childless spouses don't get anything either)
- complex rules that reduce the payouts if the surviving spouse goes to work, which is a huge incentive to design your life so that you can live on the survivor benefits alone
- the gravy train stops when the child becomes an adult, so try to time your accidental death right after they're born

It sounds like none of those apply to you, so I wish you a happy not-buying-insurance day.

[calimom]

As someone with a kid and the sole income earner, I have been investigating how much life insurance we need.

In doing so I have yet to find a single resource online discussing how significant Social Security is in this regard if I were to die - my wife and kid would both get ~2.2k a month until the kiddo is 16. It looks like it caps out around $5.2k a month, but still. That's a ton of money a year!

It feels like this is a massive benefit as far as life insurance goes.

Why doesn't this get talked about? ssa.gov makes it look nearly guaranteed, is it hard to actually receive somehow?

Survivors' benefits are pretty easy to access. You need a death certificate, birth certificates for any recipients and bank account routing info. It can be done online, but best to appear in person for at least the initial interview. Benefits appear pretty timely, and thereafter are paid on a certain day of the month in accordance with the deceased's birth date. While fairly generous, the benefits remain set in the place where the deceased's salary was at time of death. My kids don't get anywhere near the amount you quote, but survivors of a high paid (in current dollars) worker will get a much higher award. There are regular, but small, COLAs. Benefits are for the most part not considered taxable income, but unless the surviving parent or caretaker spends enormous amount on the child, they are not eligible for the child deduction for tax purposes. Benefits for the child end at 18, or 19 if still in high school. Until 1981, college students were eligible but that went away. However, benefits are not countable as family income for recipients still under age 18 or a surviving parent who may still receive benefits (which end when last child turns 16) for determining FAFSA.

It really does behoove everyone to check out ssa.gov to see how their benefits play out in various scenarios for disability, early death, and retirement at different ages. Financial planners may alert clients, but I doubt those selling life insurance products will bring a lot of attention to it. They don't want their clients to purchase less insurance, after all.

I have 3 kids and youngest was just over a year old when my husband died in 2007. By the time she ages out, we'll have received 17 years of benefits. I'm incredibly grateful. Thank you FDR and The New Deal. It's a good program.

[LaineyAZ]

I agree this aspect of Social Security seems to be much less known.

I remember in about 2005 when Pres. Bush proposed having workers invest a part of their Social Security in private accounts.  Most of my co-workers thought this was great - "I can invest it better than the government can!"
I reminded them that the Social Security fund is also for 2 other circumstances:  Disability, and Survivors benefits. 
Then they seemed to be less enthusiastic when realizing that there'd be 3 types of life events they'd have to potentially cover, vs. "it's my retirement money!"

[ctuser1]

These are fantastic features of social security.

Be careful, however, of the windfall elimination provision. It typically kicks in when there are multiple beneficiaries based on a single workers earning - e.g. wife+kid(s). It can be complicated - but basically means total benefits will be capped at 80-something % of the deceased primary’s PIA.

I’m sure there are tons of caveat to the above. In our case, I did this analysis a few years when I was a single earner, and found it would have capped the total survivors benefit for wife+2kids to around 2.3k/month total, where my PIA was a little shy of 3k/month. I’m just trying to recollect from memory, so the numbers may be a little off, but the point stays the same nevertheless.

[seattlecyclone]

In doing so I have yet to find a single resource online discussing how significant Social Security is in this regard if I were to die - my wife and kid would both get ~2.2k a month until the kiddo is 16.

Note that while the widow(er) gets the benefits only until the youngest kid turns 16, the kid gets their own benefit until they finish high school or turn 18, whichever happens last (unless they're still in high school at 19 and then they get cut off regardless).

Why doesn't this get talked about?

I dunno, I've brought it up on a number of life insurance threads in the past.

I checked the social security site and my two young kids would get a similar monthly payment to your own. With two or more kids receiving benefits the family maximum comes into play. Plugging it into a spreadsheet, it looks like the social security survivor benefits for my family have a present value which would be equivalent to a ~$600k life insurance policy (using a 6% discount rate, ignoring COLAs in the social security benefits). This present value will absolutely go down as the kids age, but for most workers the amount of life insurance they might need will also go down with time as their savings increase and their dependents' life expectancy decreases.

[ctuser1]

These are fantastic features of social security.

Be careful, however, of the windfall elimination provision. It typically kicks in when there are multiple beneficiaries based on a single workers earning - e.g. wife+kid(s). It can be complicated - but basically means total benefits will be capped at 80-something % of the deceased primary’s PIA.

I’m sure there are tons of caveat to the above. In our case, I did this analysis a few years when I was a single earner, and found it would have capped the total survivors benefit for wife+2kids to around 2.3k/month total, where my PIA was a little shy of 3k/month. I’m just trying to recollect from memory, so the numbers may be a little off, but the point stays the same nevertheless.

Replying to my own message, because I probably gave incorrect information from memory.

I logged into my ssa.gov account (a major feat, thank god that I remember the answers to password reset questions I had set 14+ years ago). The estimated benefits page looks a little different than what I remember earlier. At that time I did not have 40 credits - that is probably why.

Anyway, here are the numbers (with some digits/numbers redacted for privacy):

Retirement
You have earned enough credits to qualify for retirement benefits. At your current earnings rate, your estimated payment would be:
At full retirement age (67): $3,1XX a month
At age 70: $3,9XX a month
At early retirement age (62): $2,2XX a month
Your estimates are based on the assumption that you will earn $XXX,XXX a year from now until retirement.

Disability
You have worked enough credits to qualify for disability benefits.
If you become disabled right now your estimated payment would be: $3,0XX a month

Survivors
You have enough credits for your family to qualify for survivor benefits. If you die this year, certain members of your family may be eligible for these benefits:

Your child: $2,3XX a month
Your spouse who is caring for your child: $2,3XX a month
Your spouse (starting at full retirement age): $3,1XX a month
Your total family benefits cannot be more than $5,4XX a month.

The last sentence, I think, refers to the windfall elimination provision. But this is much higher than 80% of my PIA = $31XX, and is less than PIA X 1.8.
This indicates that my "rules of thumb" about windfall elimination provision that I gave above is incorrect.

I'd of course be appreciative if anyone can help me understand what is going on here :-).

[cchrissyy]

i think that last sentence is for people with many kids.

when i do this same exercise, I have 3 kids and no spouse, so what this section shows me is that until my kids start turning 18, if i die they will get the family maximum and not 3 times the child payment.

[seattlecyclone]

The last sentence, I think, refers to the windfall elimination provision. But this is much higher than 80% of my PIA = $31XX, and is less than PIA X 1.8.
This indicates that my "rules of thumb" about windfall elimination provision that I gave above is incorrect.

The windfall elimination provision is a different thing entirely. It's meant to make sure that someone who spent part of their career working for a job that isn't covered by social security (usually state government jobs) and earns a pension there, with some work history that is covered by social security, doesn't end up better off than someone who spent their whole career doing one thing or the other. Social security's progressive "bend points" mean that if you retire with ten years of work history you'll often be a good fraction of the way toward getting as much benefits as if you had 35 years at that same salary. So if you get the full social security while also getting a state pension, that's seen as unfair.

What you see above for a family maximum is a different thing entirely. That just exists to make sure that a widow with ten kids doesn't start pulling in a quarter million a year from the government.

[Gin1984]

I talk about this regularly, basically every time there is a thread on life insurance.

My cynical take on this is that it doesn't get talked about because there is no incentive for anyone to advertise it. The insurance industry isn't in the business of telling people not to buy their products, just like Amazon isn't in the business of pointing to public libraries.

The federal government isn't exactly great at advertising in general, but morbid/complex topics even less so.

The biggest "catches":
- you must be married (girlfriends/boyfriends don't get anything)
- you must have a child (childless spouses don't get anything either)
- complex rules that reduce the payouts if the surviving spouse goes to work, which is a huge incentive to design your life so that you can live on the survivor benefits alone
- the gravy train stops when the child becomes an adult, so try to time your accidental death right after they're born

It sounds like none of those apply to you, so I wish you a happy not-buying-insurance day.

I have not seen those rules and I thought I had read all of the info.  Can you link to it?

[seattlecyclone]

I talk about this regularly, basically every time there is a thread on life insurance.

My cynical take on this is that it doesn't get talked about because there is no incentive for anyone to advertise it. The insurance industry isn't in the business of telling people not to buy their products, just like Amazon isn't in the business of pointing to public libraries.

The federal government isn't exactly great at advertising in general, but morbid/complex topics even less so.

The biggest "catches":
- you must be married (girlfriends/boyfriends don't get anything)
- you must have a child (childless spouses don't get anything either)
- complex rules that reduce the payouts if the surviving spouse goes to work, which is a huge incentive to design your life so that you can live on the survivor benefits alone
- the gravy train stops when the child becomes an adult, so try to time your accidental death right after they're born

It sounds like none of those apply to you, so I wish you a happy not-buying-insurance day.

I have not seen those rules and I thought I had read all of the info.  Can you link to it?

https://www.ssa.gov/pubs/EN-05-10069.pdf

TL;DR: If you're younger than full retirement age and receiving benefits, those benefits will be decreased by 50¢ for every $1 you earn over an annual threshold of $18,240. Of course this would only apply to the benefits for the person earning wages. The benefits for the children should be unaffected. Not sure exactly how this interacts with the family maximum. It's possible that a family at the maximum could have one person working and not affecting the overall benefits, if the widow's reduced benefits from work just mean the kids now get more. I can't find a source on how this works though.

[calimom]

We were at Family Max until my oldest child  aged out. The award for the younger two went slightly upward due to some complicated accounting I don't fully understand. As I was working and making about double the cut-off point, it made no sense for me to take the parent benefit.
It's correct that a parent who's unmarried to the deceased worker will not collect for either the retirement or caregiver benefit, SSA does recognize legal marriage in a big way. And in the not-hilarious circumstance that both parents die, the minor children will collect only one benefit; of course the higher earner's.

Little known fact: until about 1975, fathers were not eligible for the caregiver benefit. Ruth Bader Ginsberg represented a widowed SAHD and argued in his behalf, which created a favorable ruling with the Supreme Court, thereafter equalizing this award.

And a more recent ruling has allowed women to use their late husband's banked sperm to create the family they wanted, and grant them survivors' benefits.

[Paul der Krake]

Little known fact: until about 1975, fathers were not eligible for the caregiver benefit. Ruth Bader Ginsberg represented a widowed SAHD and argued in his behalf, which created a favorable ruling with the Supreme Court, thereafter equalizing this award.

Wow, I had read about the the famous RBG case but didn't realize it was precisely about survivor benefits. Very cool.

Another interesting fact gleaned going down the wikipedia rabbit hole: technically you don't even need to "have" a child before you die, it just needs to be in the oven. There is a whole procedure in place to recognize survivor benefits to children and spouses of deceased fathers who died before the birth. In this day and age of frozen eggs/sperm, I'm super curious how far someone could potentially push this idea. That'd make for some great legal arguments.

[DeniseNJ]

Let's also point out the disability insurance.  That's significant.  SSA is life insurance, disability insurance, and retirement benefits--you just can't get more than one at a time. ;)

[Michael in ABQ]

My dad became disabled when I was 17 and we received something like $700 a month until I graduated high school (18 and change). It ended up being about $10k k and was used to pay for most of my first year of college.

I'm currently on a 40-minute hold with the SSA to try and get my online account setup so I can check my benefits. I swear their automated phone system was deaf. I was practically yelling "Yes" a few times.


Edit: Apparently it wouldn't let me create an account because my credit is frozen with all the credit bureaus. They pull data from there for verification.

[fuzzy math]

Reading this is making me want to cancel my life insurance. I’ve always looked at my SSA benefit calculator, but never really considered that my family wouldn’t need much beyond that with the progress we’ve made toward FI. Even when 2 out of 3 kids age out, it still sounds like my DH could pick up spousal benefits (unless they have to be waived completely)

I would hate to introduce an element of karma by canceling my life insurance and possibly daring the universe to bring it on.


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[ctuser1]

One other *catch* I'd like to point out is that the social security trust fund is likely to run dry sometime in 2030's. Post that, all benefits will likely need to be scaled back to fund them solely from FICA.

I know that the consensus is that likely won't happen. I'm not so sanguine. Most mustachians (=wealthy, when measured in networth) *should* be shafted, at least a bit, in any fair re-working of things.

Net net, I assume a 25% haircut on all social security numbers if and when my family ever needs it, or when I/DW retire.

[Sanitary Stache]

I foolishly changed my life insurance based on my salary and not on how much money my family would need if I died.  But I did learn about the social security survivor's benefits and and it flipped my understanding of who needed more life insurance, me or DW.
This thread inspired me to see if I still knew how to sign into SSA.gov.   

[PDXTabs]

In doing so I have yet to find a single resource online discussing how significant Social Security is in this regard if I were to die - my wife and kid would both get ~2.2k a month until the kiddo is 16.

Yes, and the child can collect until they are 19 if they are unmarried and haven't graduated from high school yet. My younger brother did just this when our dad died.