Academic journal article Social Security Bulletin

Understanding the Social Security Family Maximum

Academic journal article Social Security Bulletin

Understanding the Social Security Family Maximum

Article excerpt

Introduction

Workers receive Social Security retirement and disability benefits based on their covered earnings. Members of their families may also qualify for benefits based on those earnings--for example, their survivors, spouses, and children. Benefits for family members have always been limited by the family maximum rules. In 1980, Congress established more restrictive rules for the families of disabled workers, reflecting concerns that some disability beneficiaries were financially as well off, or better off, when receiving benefits than they were when working. The family maximum rules have evolved over time and have become more complicated for all beneficiaries, which in some cases make them difficult to implement. If not implemented correctly, the Social Security Administration (SSA) may pay beneficiaries improperly.

In this article, we describe the current family maximum rules using illustrations of different benefit types. We also describe the rules for beneficiaries entitled to benefits on multiple earnings records. We explain how the family maximum rules have evolved over time and then provide an analysis of the rules at different earnings levels, by comparing those for retirement and survivor families with those for disability families. Using Modeling Income in the Near Term, Version 6 (MINT6) data, we analyze who is affected by the family maximum and to what extent their benefits are changed.

Major Findings

SSA's family maximum rules are complex and affect beneficiaries in different ways, depending on their earnings levels and benefit types. In particular, the rules that apply to disability beneficiary families differ significantly from those that apply to retirement and survivor beneficiary families. Our findings include the following:

* The disabled family maximum affects many more families and a wider range of family sizes than the retirement and survivor family maximum because more restrictive rules apply to disability benefits.

* Retirement and survivor beneficiary families are not affected by the family maximum rules unless three or more family members receive benefits; when those beneficiary families are affected, auxiliary beneficiaries (or auxiliaries) always receive partial benefits.

* Disability beneficiary families, by contrast, sometimes lose all of their auxiliary benefits, even in cases where only one family member qualifies. All disability families with three or more beneficiaries are affected by the family maximum and more than half of families with two beneficiaries are affected.

* Among families affected by the family maximum, reductions can be substantial. For affected disabled-worker families, we estimate that the median reduction is about 33 percent; for survivor families, about 23 percent; for retired-worker families, about 14 percent. For some family members of disabled workers, the family maximum rules prevent a benefit from being paid at all.

Selected Abbreviations

AIME   average indexed monthly earnings
AWI    average wage index
DI     Disability Insurance
MINT   Modeling Income in the Near Term
OASI   Old-Age and Survivors Insurance
PIA    primary insurance amount
SSA    Social Security Administration

Current-Law Family Maximum Rules

In this section, we provide the current basic family maximum rules for retirement and survivor benefits and for disability benefits. We also discuss current-law rules that are common to both types of benefits.

Rules for Retirement and Survivor Benefits

The family maximum formula for Old-Age and Survivors Insurance (OASI) benefits is based on a beneficiary's primary insurance amount (PIA). The PIA is a beneficiary's basic Social Security benefit amount before adjustments for retirement age, earnings, and other factors. (1) For a worker who reaches age 62 or dies in 2015 (before reaching age 62), SSA calculates the family maximum using the following formula:

150 percent of the first $1,056 of the worker's PIA plus

272 percent of the worker's PIA over $1,056 through $1,524 plus

134 percent of the worker's PIA over $1,524 through $1,987 plus

175 percent of the worker's PIA over $1,987. …

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