Does the timing of starting your SSA benefits affect your family?

When a parent chooses to start receiving Social Security Administration (hereinafter referred to as SSA) benefits affects a family differently with a child with special needs. In planning for your retirement there are important pieces of information to consider.

·       A child must be deemed disabled by the SSA prior to age 22 to be connected to their parents’ social security work record.

·       A person’s full retirement age (FRA) is related to their birth year and month.

For the following examples I will use a person born in 1960 and full retirement age is 67.

Scenario #1

A parent turns 67 in January of 2023 and will receive $3,600 a month from their SSA retirement benefits.  The parents’ child who has been deemed disabled is entitled to one-half of the parents SSA benefit, of $1,800 a month.  If the disabled adult child (hereinafter referred to as a DAC) had Supplement Insurance Income (hereinafter referred to SSI) and Medicaid prior to the parent starting their SSA benefit, the DAC will receive the highest benefit allowed which is $1,800 and will not lose their Medicaid health insurance as stated in SI 01715.015 Special Groups of Former SSI Recipients.

Twenty-four (24) months after the DAC begins receiving their Retirement, Survivor, Disability Insurance (hereinafter referred to as RSDI) they will be eligible for Medicare insurance and will retain their Medicaid health insurance.

Scenario #2

A parent waits until age 70 to start their SSA benefits.  The FRA benefit has increased by 8% each year for the past 3 years.  This is an increase for the recipient but not the DAC.  Once the parent begins receiving their SSA benefit, their DAC will be eligible for 50% of the PIA and will have to wait 24-months before becoming eligible to receive Medicare.

Scenario #3

A parent plans to work until they are 70 and is thinking of beginning their SSA benefit on the of the month they turn age 62.  The following are social security rules to consider before beginning their benefit.

·       If the parent starts receiving their SSA benefit in the year they reach age 62, there is a permanent reduction of 30% of the primary insurance amount (hereinafter referred to as PIA).  If the PIA would have been $3,600 a month, they would receive the reduced amount of $2,520 a month.  This is a permanent reduction.

·       If the DAC will receive RSDI benefits from this parent, they will receive 50% of the parents PIA and receive $1,800. The parent’s SSA benefit does not increase as they age.

·       If the parent continues to work, they are limited in the amount of gross earnings they are able to make before there is deduction of their benefit.

SSA rules state that prior to FRA you can only earn $21,240 a year.  If you earn more than this amount annually, SSA subtracts one dollar of your benefit for every two dollars in earning above the limit.

•   Example:  Parent earns $30,000 a year, their benefit would be reduced by $500, and they would receive $25,860 a year.  If the parent earned $81,720 a year, their SSA benefit would be reduced to zero.

o   The year the parent reaches FRA they can earn $4,710 a month for the months prior to attaining 67. If the earned income is over this amount, SSA will reduce the person’s benefit one dollar for every three dollars above the limit.

o   The month the parents reach their FRA and thereafter, they can earn as much as they want without any penalties.

Scenario #4

The husband is 67 and his wife is 62.  The husband is working and has family health insurance through his employer.  The husband is going to retire later this year.  They have a disabled adult child (hereinafter referred to as DAC) who is receiving SSI and Medicaid and health insurance from his father’s employee insurance.  The wife works part-time and has health insurance through her husband’s employer. The husband plans on retiring this year and must sign up for Medicare.  His family will lose the husband’s employer health insurance.

ISSUES TO BE CONSIDERED:

HEALTH INSURANCE

·       What kind of health insurance will his wife and DAC receive until Medicare is available in 3 years for the wife and 2 years for his son.

·       He could purchase COBRA for his family that would cover them for 18 months.

·       This will leave the DAC with Medicaid and no commercial health insurance to cover what Medicaid does not for 6 months.  His wife would be covered for 18 months; however, she would need health insurance for an additional 18 months after the COBRA policy expires.

·       She could try the marketplace for health insurance or work with a health insurance broker to obtain private paid insurance.

·       Their DAC is eligible for Medicaid and is not eligible to get additional health insurance through the marketplace.

SOCIAL SECURITY RETIREMENT BENEFITS

·       Does the husband start to receive his SSA retirement benefits at 67?  His DAC is entitled to ½ of his SSA benefit which does not diminish his benefit, and 24 months later he will be eligible for Medicare and keep his Medicaid.

·       Does the husband wait until he is 70 and his SSA retirement benefits will increase 8% a year until he turns 70?  This will increase his benefit, but it will not increase the amount his DAC will receive.  The DAC is only eligible to receive one-half of his parents’ PIA benefit.

·       If the husband begins benefits at age 70, his DAC will still have to wait 24 months to be eligible for Medicare.

As you can see, this leaves a lot of unanswered questions that do not have a black and white answer as each family is different.  Retirement and the timing of starting your SSA benefits is not a simple decision when you have a spouse and a DAC.  This is an area where planning ahead and talking with a SSA benefits counselor or a financial planner who is well versed in the implications of providing for a DAC is so important.  It can be costly and frustrating to make decisions without knowing how it will affect the whole family.