Social Security Q&A: Is There a Cap on the Benefits My Family Can Earn?

Happy senior couple
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This week’s question comes from Steve:

“Can you explain the Social Security family maximum amount? My friend — who earned the maximum earnings cap over his 35-year career — claims that he was told by an SSA representative that his wife could not claim spousal benefits equaling 50% of his benefit due to the family maximum allowance. This doesn’t sound right to me. Please advise.”

A breakdown of the family maximum allowance

Steve, you were correct in your suspicion that the Social Security Administration rep had misinformed your friend. Unfortunately, some SSA reps routinely give out bad advice.

There is, indeed, a family maximum allowance. But it comes into play only if the primary beneficiary has more than one dependent. For cases involving just a husband and a wife, the family maximum has no impact.

However, for cases involving a husband, wife and one or more children (or dependent parents), the family maximum will limit the total benefits payable.

The family maximum is tied to the primary beneficiary’s primary insurance amount (PIA), which is the benefit at the person’s full retirement age. The family maximum varies depending upon a person’s PIA. It ranges from 150% of their PIA up to 188% of their PIA.

In calculating whether the family maximum applies, delayed retirement credits are ignored. So, for evaluating the family maximum, the primary beneficiary’s contribution would be, at most, 100% of their PIA — less if they claimed early. Meanwhile, their spouse’s contribution would be, at most, 50% of the primary’s PIA.

When the family maximum is relevant, benefit reductions for the multiple dependents are spread equally among them. To illustrate, let’s assume that a principal beneficiary has a PIA of $1,000 — so the most any dependent could receive is $500. With a PIA of $1,000, the family maximum is $1,500.

So, if two dependents (for example, a wife and a child) are eligible for benefits, each would receive $250. With three dependents, each would receive $167.

An odd — and inequitable — formula

The family maximum is based on a formula that leads to odd and inequitable results:

  • At PIA amounts below $1,184, the family maximum is 150% of the principal’s PIA.
  • From a PIA of $1,184 to $1,708, the family maximum steadily increases to 188% of the relevant PIA.
  • Between $1,708 and $2,228, the family maximum declines from 188% to 175% of a person’s PIA. It remains at 175% for PIA amounts above $2,228.

So, the family maximum is the lowest for those with lower benefits, higher for those with the highest benefits, and highest for some in the middle range of benefits. This pattern is odd insofar as I can neither find nor imagine a sensible explanation for it.

It is also inequitable in that it favors higher-benefit families over lower-benefit families. This pattern is the opposite of the overall benefit structure of Social Security, which favors lower benefit families over higher benefit families.

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About me

I hold a doctorate in economics from the University of Wisconsin and taught economics at the University of Delaware for many years. In 2009, I co-founded SocialSecurityChoices.com, an internet company that provides advice on Social Security claiming decisions. You can learn more about that by clicking here.

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Disclaimer: We strive to provide accurate information with regard to the subject matter covered. It is offered with the understanding that we are not offering legal, accounting, investment or other professional advice or services, and that the SSA alone makes all final determinations on your eligibility for benefits and the benefit amounts. Our advice on claiming strategies does not comprise a comprehensive financial plan. You should consult with your financial adviser regarding your individual situation.

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