How Unfair Is Social Security’s Maximum Family Benefit?


When you take your retirement benefit and whether you are a high, moderate or low wage earner can dramatically affect how much your family can get in Social Security auxiliary benefits. Photo by Mike Kemp/Getty Images.

*Larry Kotlikoff’s [Social Security original 34 “secrets”](
newshour/businessdesk/2012/07/social-security-secrets-you-ne.html), his [**additional
social-se.html), his Social Security [“mistakes”]( and his [**Social Security
security-gotchas.html) have prompted so many of you to write in that we now feature “Ask Larry” every week.*

*We are determined to continue it until the queries stop or we
run through the particular problems of all 78 million Baby Boomers, whichever comes
first. Kotlikoff’s state-of-the-art retirement software is [available](http://, for free, in its “basic” version. His considerable and often very useful output is available on his website.*

Larry Kotlikoff: A question I asked myself this week: how unfair is Social Security’s maximum family benefit?

You might think that Social Security’s family benefit maximum is what it sounds like, a straightforward dollar ceiling on the total amount that you, your spouse, and your children can receive on your earnings record and that the same ceiling would apply to everyone. But you’d be wrong.

For starters, there’s a rather weird and arguably unfair formula for calculating the [family benefit maximum]( (FBM). Your own full retirement benefit, called your [primary insurance amount]( (PIA), is what you can begin to take when you reach the age of full retirement — 66 years old these days, but rising to 67 for those born in 1960 or later.

The problem is, if your PIA is very low, your total family benefit maximum will be only 150 percent higher. With a somewhat larger PIA, however, the maximum rises to 187 percent of your PIA. It then ebbs, ending up at 175 percent of your PIA. So 175 percent is the family maximum for those with the highest full benefits for themselves, a considerably higher multiple of PIA than for workers with the lowest personal benefits.

These family benefits — spousal benefits, survivor, mother/father, and children benefits — are called auxiliary benefits. The total family maximum is the wage earner’s personal maximum plus the maximum of auxiliary benefits for family members. What makes the system both arbitrary and regressive is that the maximum auxiliary benefits are just 50 percent of a very low-income worker’s full or “primary” retirement benefit (PIA), 87 percent of the moderate income worker’s PIA, and 75 percent of the high earner’s PIA.

A second kink in the rules and regulations: the most the family, including the worker, can receive also depends on when the worker takes retirement benefits.

Say you’re a low-income worker and you take your benefits as early as possible, at 62, because you need the money in order to live. Your retirement benefit will then be reduced permanently to 75 percent of what you would get at your full retirement age. So the maximum you and your family can receive is 75 percent of your PIA (your reduced retirement benefit) plus 50 percent of your PIA in auxiliary benefits. In this case, your family maximum is only 125 percent — 75 percent plus 50 percent — of your full retirement benefit.

Contrast this to a moderate earner who waits until full retirement age. She would have a family benefit maximum equal to 187 percent of her full retirement amount. Now look at what happens if this worker can afford to wait until 70 to collect her retirement benefit. In this case her own retirement benefit is 1.32 times her PIA thanks to the “delayed retirement credit” and the maximum auxiliary benefits are 87 percent of her PIA. (The delayed retirement credit compensates workers who wait to collect Social Security with higher benefits once they start collecting.)

Hence, the largest amount the moderate earner family, including the earner herself, can receive is 219 percent of what she would receive at normal retirement age.

You would not quite know all this by reading Social Security’s 30,000-foot description of the family benefit maximum, which states, “The maximum family benefit is the maximum monthly amount that can be paid on a worker’s earnings record.”

In other words, the maximum is the maximum and good luck figuring out what we mean by the maximum!

Carol — Marblehead, Mass.: I am 64 years, single/divorced and currently not employed but trying. My former spouse took his Social Security benefits early at 62, and collects around $16,000 a year.

If I collected early, my benefits would have been $11,000 a year. My goal is to wait until 70 to collect.

We were married for 30 years before divorcing. He has remarried. What is the best way to maximize benefits? Should I file when I’m 66 on his benefits and then when I’m 70 file on my own? Is that allowed?

Larry Kotlikoff: The best way is to do exactly what you propose. File at 66 years old for a spousal benefit and then at 70 for your own retirement benefit.

Molly Cruz — Santa Cruz, Calif.: Why not give early retirement to laborers, without penalty, say at 60 years old? This could make room for new workers and unleash a generation of spending, travelling, charitable working, and re-educating retirees — a two-pronged aid to the economy.

Larry Kotlikoff: Social Security already permits early retirement at 62. It permits widows to take benefits at 60. But taking benefits early leads them to be reduced. If you are advocating full retirement benefits starting at 60, my reaction is the system is already 31 percent underfinanced and can not afford what it’s now doing, let alone such a policy change.

Jim Gilchrist — Costa Mesa, Calif.: I’m 66 years old. If my wife dies before she’s 62, would I be eligible for survivor benefits?

Larry Kotlikoff: Yes, if she worked in covered employment and if you have been married for nine months or more.

Lorraine — Los Angeles: My 66-year-old husband is collecting Social Security. I’m 66 also, but I’m going to work until 67 or 68. I have a government job so my husband receives the higher Social Security. Can I delay my Social Security benefit and seek a spousal benefit instead?

Larry Kotlikoff: You can and should do this. It’s effectively free money.

Robert Forsythe — Plainwell, Mich.: My family’s only source of income is Social Security Disability. My wife has kidney cancer and we are told we make 27 dollars too much to get Medicaid. Why is the state of Michigan refusing to give her care? We pay cash for any care she gets and this prevents us from paying things like electric and gas bills.

Larry Kotlikoff: This is just outrageous. I hope the new health care exchanges created under the Affordable Care Act will provide some help.

Jacklyn Clark — Buffalo, N.Y.: I am presently receiving Social Security and am recently divorced. If one of us died before the other, would we be able to receive our survivor benefit and receive our own benefit?

Larry Kotlikoff: Yes, assuming you were married 10 or more years and don’t remarry before age 60. Also, if you take your retirement benefit at the same time as your survivor benefit, you will get the larger of the two.

A better strategy is to either:
A. Take the retirement benefit earlier than the survivor benefit, where R is the retirement benefit and S is the survivor benefit; or
B. Take the survivor benefit (S) before the retirement benefit (R). If you take R before S, you’d want to take your retirement benefit as soon as possible and then at full retirement age switch to your non-reduced survivor benefit. If you take S before R, you’d want to take your survivor benefit before or at full retirement age and wait until 70 to take your retirement benefit.

What’s best for you or your ex as survivors would depend on both of your earnings histories. Also, if the survivor’s maximum age of life is pretty short, some modification of these two strategies may be optimal.

Social Security makes these decisions as difficult as possible. You might benefit from one of the software tools on the market or consult an advisor to help you figure out how to maximize your lifetime benefits.

Angie — Charlotte, N.C.: I am 60 and currently retired, but I may be taking an opportunity to rejoin the workforce. My husband is 58 and currently working. Should I take Social Security at 62 or wait?

Larry Kotlikoff: Go back to work if you can. Retirement is a waste of time. The economy needs you! You should NOT take Social Security at 62 unless you want to have permanently reduced benefits. It would be better to wait until 70 to take your retirement benefit when it will be as much as 76 percent higher than at age 62, depending on what day of the month you were born, I kid you not.

When your husband reaches 64, it might be worth having him apply for his retirement benefit and then have him suspend it at 66, when he reaches full retirement age. He can then start it up again at 70 at a 32 percent larger value than when he suspends it. This will enable you, at age 66, to apply for a spousal benefit, which will equal half of his full retirement benefit. You’ll be able to collect this “free” spousal benefit from 66 to 70.

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions.