| Your
Retirement Age Can Affect your Child’s Disability Benefits |
PDF VERSION |
By: Barbara A. Isenhour
If you have a child with
special needs you should think carefully about whether it is advisable to take
early retirement. Social Security has a formula for reducing retirement
benefits depending upon how many years before reaching full retirement a worker
retires (but not younger than age 62). So for example, if you retired at age 64
you would receive more than if you retired at age 62 but less than if you waited
until your full retirement age. Full retirement age varies between age 65 and
67 depending on the worker’s date of birth. You can calculate your full
retirement age by going to Social Security’s web site,
http://www.ssa.gov/OACT/quickcalc/index.html.
There are several articles on
the pros and cons of taking early retirement from Social Security at age 62.
Many of the articles discuss what is referred to as the “break even” point.
The idea is to try and calculate whether you will receive more money over your
lifetime if you receive a smaller amount starting at age 62 or a larger amount
that does not start until a later age. There are calculator programs to
determine how long you would have to live before the amount social security pays
at the full retirement rate would be greater than the smaller amount you would
receive if you elected early retirement.
These articles and
calculators fail to take into account one factor that is of critical importance
to parents with a special needs child. Your child may be eligible for a social
security benefit that is based on your retirement benefit. The less you receive
in retirement income, the less your child’s benefit will be.
Child Disability Benefits
If children are disabled
before the age of 22 they may be eligible for Child Disability Benefits (CDB)
when their parent retires, becomes disabled or dies, if the parent paid into the
social security system while working. This benefit is sometimes referred to as
Disabled Adult Child benefits (DAC). The child’s benefit amount is 50% of the
parent’s social security benefit. If the parent dies the CDB benefit is
increased to 75% of the parent’s benefit amount. If both parents are retired,
disabled or deceased, the child will get the higher benefit amount of the two
parents.
Many adult disabled children
are already receiving SSI benefits when they qualify for CDB. CDB will replace
or offset the SSI benefit dollar for dollar. If the CDB amount is less than the
SSI benefit amount the child will receive both CDB and enough SSI to bring the
child up to the SSI benefit amount plus an additional $20.
The SSI benefit amount for
2008 is $674. So for example if your son’s CDB benefit is $600 he will be
eligible for an additional SSI benefit of $94 per month ($74 + $20). If your
son’s CDB benefit was $800 per month he would receive no SSI benefits because
the CDB amount exceeds the SSI benefit amount plus $20. Recent changes in
federal law allow children to retain their Medicaid eligibility if they would
have been eligible for SSI but for the higher CDB amount.
How Retirement Age Affects
Child Disability Benefits
The CDB amount paid to your
child is based upon your actual benefit amount. Applying for early retirement
social security benefits will not only reduce your social security benefit
amount for the rest of your life but it will also reduce your child’s CDB
benefit.
To illustrate this, let’s
take a hypothetical single parent, Kate, who is 61 years old and trying to
decide whether to take early retirement at age 62 or wait until her full
retirement age at 66. Kate has a 30 year old son, Kevin, who is currently
receiving SSI benefits of $674 per month. Using the above social security chart
and Kate’s earnings record reported to Social Security, Kate determined that if
she retired at age 62 and later died Kevin’s survivor’s benefit amount would be
$843 per month (75% of $1,124). If she retired at age 66 and later died Kevin’s
benefit would be $1,107 per month (75% of $1,476). Kate did not take into
account annual cost of living adjustments (COLA) in making these rough
calculations and disregarded the CDB benefits Kevin would not receive during the
four year period before she reached her full retirement age.
The difference in Kevin’s CDB
amount depending upon when Kate applied for social security amounted to $264 per
month or $3,168 per year. Projecting out this increased benefit amount over 40
years, Kevin would receive approximately $125,000 more in CDB income if Kate
waited to apply for social security until she reaches her full retirement age.
Keep in mind that the above projections are based upon Kate’s employment history
so the projected CDB benefits for her son will not be same as another parent
with higher or lower earnings.
There are many factors to
take into account before deciding when to apply for social security retirement
benefits and there is no right answer to the question, “is early retirement a
good idea?” For some families there are economic or employment issues that make
early retirement necessary regardless of the impact on a child’s CDB amount.
For some families there are significant assets to leave to their children in a
special needs trust, making additional monthly income from delayed retirement
less significant. Some children contribute almost all of their income as a
co-payment towards residential care paid by the Medicaid program so additional
monthly income will not impact the quality of their life. Some children have
their own employment history that gives them a higher disability benefit than
what they would receive on a parent’s social security account.
All of the above factors
should be weighed carefully before you decide whether to apply for early
retirement with Social security. Your financial planner can give you guidance
on the best age for you to retire based upon you net worth. But if you have a
special needs child who was disabled before the age of 22 no decision should be
made before considering the impact of your retirement age on your child’s future
social security benefits.
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