How Do Child’s Benefits Affect Social Security Claiming Strategies?

A reader writes in, asking:

“If I have a young child, how does that affect the age at which I should be filing for my Social Security?”

Before getting into how claiming strategies are different for people with qualifying children than for people without qualifying children, we must first discuss who is a qualifying child.

How Does Somebody Qualify for Child’s Benefits?

While you’re still alive, in order for your child to qualify for a Social Security benefit based on your work record, your child must be:

• Under 18,
• 18 or older and disabled (with the disability having begun before age 22), or
• 18 or older and a full-time student in grade 12 or below.

In addition:

• Your child must be “dependent” on you (though in the case of a natural child, that requirement is automatically considered to be met unless the child has been legally adopted by somebody else), and
• You must have filed for your retirement benefit.

How Do Child’s Benefits Affect Claiming Strategies?

There are three key points to understand about the interaction of child’s benefits and Social Security claiming strategies.

First: Waiting to claim your retirement benefit does not increase your child’s benefit amount. While you are alive, your child’s benefit amount is simply 50% of your primary insurance amount — your PIA being the monthly retirement benefit you would receive if you claimed that benefit at your full retirement age. (After you die, your child’s benefit is 75% of your PIA.)

Second: Because you must have filed for your retirement benefit in order for your child to be able to qualify for a child’s benefit, the cost of each year that you wait to file is greater than it would be for a person without a qualifying child (because you’re giving up a year of child’s benefits as well as a year of retirement benefits).

Third: If you have a qualifying child, your spouse may be able to qualify for spousal benefits based on your work record, even if your spouse has not yet reached the normal qualifying age of 62.

As a result of these three facts, having a qualifying child is a point in favor of claiming early. It isn’t necessarily a conclusive reason that you should file early, but it’s certainly a point weighing in that direction.

For example, for an unmarried person, currently age 62, who is considering:

1. Starting retirement benefits now at 62, as opposed to
2. Starting at 70 (after filing and suspending at 66, in order to allow the child to start receiving benefits)

…having a qualifying child pushes the break-even point from age 80.5 to age 84.** That is, rather than having to live beyond age 80.5 in order for waiting to be advantageous, you’d have to live beyond age 84 (which is, of course, less likely).

For a married couple, there’s no way to give a generalized break-even point, because it depends on the difference in the spouses’ ages, as well as the difference in primary insurance amounts.

Possible Claiming Strategies

With the additional moving piece that comes into play when child’s benefits are involved, the complexity of assessing one strategy against another goes through the roof. As a result, while using a Social Security claiming calculator is likely a good idea for anybody, it’s even more likely to be beneficial for people who have a qualifying child. Unfortunately, to the best of my knowledge, only one of the online calculators (MaximizeMySocialSecurity.com) includes child’s benefits in the analysis.

Having said that, the following two strategies may serve as a (very rough) starting point for analysis.

Strategy one:

The low-PIA spouse claims retirement benefits as early as possible, thereby allowing the child to start taking benefits based on that spouse’s work record. Then, upon reaching FRA, the high-PIA spouse files a restricted application (thereby receiving spousal benefits based on the low-PIA spouse’s work record). Then, at 70, the high-PIA spouse files for his/her own retirement benefit, and the child begins receiving benefits based on the high-PIA spouse’s work record.

Strategy two (which may be preferable when the difference between the two spouses’ PIAs is quite large):

The low-PIA spouse still files for retirement benefits at 62, allowing the child to start receiving benefits. Then, at his/her FRA, the high-PIA spouse files and suspends, thereby allowing the low-PIA spouse to start receiving a spousal benefit, and thereby allowing the child to start receiving a higher child’s benefit. Then, at his/her age 70, the high-PIA spouse actually starts receiving retirement benefits by asking to have them unsuspended.

**We’re keeping things simple in this analysis by ignoring investment returns. If we assume that early-taken benefits are invested and outpace inflation, that would push the break-even point back even further.