Ask Larry: How Will The Family Maximum Affect Our Social Security Benefits?

Social Security may be one of your largest assets. What and when you collect will make a huge difference to your lifetime benefits.

Today’s column highlights a recent email exchange we had with a customer about the family maximum that can be claimed on a single record. The rules are complex and confusing, as shown below. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, a company that markets Maximize My Social Security and MaxiFi Planner. Both tools maximize lifetime Social Security benefits. MaxiFi also finds retirement account withdrawal strategies and other ways to lower your lifetime taxes and raise your lifetime spending. Most important, it suggests how much to spend and save each year to enjoy a stable living standard through time.

The family maximum and how it’s applied in a particular situation can be complicated. Here’s a recent email exchange that highlights this complexity:

Jim: A financial planner ran this program for me and my family but the total benefits always exceeds the family maximum listed on my Social Security statement as well as what the Social Security office told us. Why did you program not catch that critical point?

Maximize My Social Security (MMSS): Can you tell us what financial planner you used. We’ll need to look at your case to tell how the benefits are being calculated. Our program correctly incorporates the maximum family benefit? If part of your wife’s benefit is based on her record due filing for her retirement benefit in addition to her spousal benefit, that portion would not count against the maximum that can be claimed on your record.

Jim: Here is the information you requested.

MMSS: Our calculations are correct. You and your financial planner are misunderstanding the family maximum. The family maximum on your Social Security statement is only the maximum that can be on your record.

It is not the maximum benefit that the family can receive off of both spouse’s records. Since your wife’s retirement benefit is based on her record, it does not count against the maximum that can be claimed on your record. The benefits based on your record do not exceed the family maximum that can be claimed on your record.

Jim: The report didn’t seem to apply the family limit to the sum of my benefits, those of our child and my wife’s child-in-care spousal benefit. To my understanding, all of those would be on my record, and thus the limit should apply.

I’ve attached the analysis prepared for us by our financial planner as well as the June 2019 Social Security statements for both my wife and I. I imagine some of the assumptions in the analysis are slightly different from the statements. For one, my full retirement age (FRA) benefit was $2,610 according to the Social Security statement. Second, the analysis was prepared in May and my statements are from June so the data would be slightly different. Please note that we have a minor child.

As I understand it, if I file for my retirement benefits, we can also apply for child benefits for her as well as child-in-care spousal benefits for my wife — all under my record. That is where the family maximum comes in.

According to my Social Security statement, that limit is $4,612 per month, although the Social Security office said my limit was actually $4,568. The analysis shows that if we take all of our benefits starting in December 2019, the monthly payment would be $4,632 — just a bit over either limit but pretty close and probably due to the slightly different data that went into the analysis. Had we started all of our benefits, including my wife’s retirement benefit, in May, we would have lost some money versus the maximized strategy of taking my retirement benefits along with my daughter’s and wife’s benefits December 2019 and delaying my wife’s retirement benefits until her FRA.

But the analysis does not show a third option which I think might be the best: taking my retirement benefit now and not in December plus other two benefits for my wife and daughter while delaying my wife’s retirement benefit until May 2022. I’m not sure why the planner chose December as the month to start benefits but delaying taxes may have been a factor. Also, the Social Security office told me my monthly payment would be $2,888 now and not change until the January 2020 check due to how they “catch up” every January. I wonder then, does the mamily Maximum go up in January or even month by month the longer I delay taking my benefits?

MMSS: Note that Social Security’s estimates are based on unrealistic assumptions — see our FAQs below for more. Also note that the software considered 53,215 strategies that are allowed by Social Security, including your proposed strategy and all the others underperformed the maximized strategy. And your financial planner didn’t choose 12/2019 to file. That’s part of what the software calculated to be your maximized strategy, the one that yields the highest lifetime household benefits.

Keep in mind that your Primary Insurance Amount (PIA), which is equal to your FRA retirement benefit amount, is what counts as your benefit against the family maximum, not a higher benefit amount due to filing after FRA. Last note that the family maximum increases in January to keep up with inflation.

Understanding the definition and ramifications of the family maximum that can be claimed on a single record is complex enough without the unrealistic assumptions SSA’s benefits are based on further muddying the waters. See the Frequently Asked Questions (FAQs) mentioned in the exchange and copied below. Both of my company’s programs — Maximize My Social Security or MaxiFi Planner — account for the family maximum and the combined family maximum that comes into play when both spouses have filed for their retirement benefits. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care, including accounting for the family maximum that can be claimed on a record.

Can I use my benefit amount instead of my actual past covered earnings history?

You can enter your past covered earnings manually, import them from the Social Security website, or, if you are not currently working in employment covered by Social Security and will not do so in the future, you can enter the gross benefit amount before any taxes or other deductions if you’re currently collecting or enter your estimated retirement benefit at FRA provided by Social Security.

If you choose to use Social Security’s estimate or your current benefit amount, we account for the fact that Social Security purposefully lowballs benefit estimates by unrealistically assuming zero future wage growth and zero future inflation, counter to all our post-war history. This seems designed to encourage people so save more and not rely too much on Social Security, but astonishingly, some calculators use this deliberate underestimate without adjustment as their primary input.

Why can’t I use my benefit amount and enter current or future covered earnings?

If there are current or future covered earnings on a record, in order to accurately account for the ensuing re-computation of benefits, we must have the actual—rather than inferred—past covered earnings.

For this reason, each of these mutually exclusive options disallows the other. If you use your current or estimated retirement benefit, you will not be able to enter future covered earnings. And if you first enter future covered earnings, you will not then be able to use your benefit estimate or current amount.

To learn more about your Social Security options, visit Economic Security Planning, Inc.

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