Social Security does have a maximum payout called the Family Maximum. It may apply to families who are retired, family survivors, and families of a disabled person receiving benefits.
There is a formula for the benefit which is complicated. Your Social Security statement specifies what the maximum benefit may be. The values the formula uses to compute the benefit also changes every year.
For most people, understanding how the formula is calculated is less important than knowing that, in some cases, adding each individual’s (spouse + child 1 + child 2 + etc.) benefit amounts together is not how much the family would receive if the total of those benefits exceed the family maximum stated on your statement.
WHEN may this become a problem?
- When the person dies from which the benefits would be calculated and they have a family with enough survivors (spouse + children + YES, dependent parents … many don’t realize this last one!).
- Because dependent parents are also eligible, and/or the older worker over the age of 62 receiving the benefits may also have dependent children, along with a spouse (and/or dependent parents), the total of those benefits while the person is still alive may also exceed the family maximum.
When does the family maximum NOT apply?
- Do you need to worry about the family maximum if you want to wait until age 70 to earn all of your Delayed Retirement Credits (DRCs)? No, because the family maximum is calculated based on the Primary Insurance Amount (PIA) which is one set number calculated each year. DRCs are also calculated based on that same PIA, but don’t apply to the family maximum.
- Family maximum also typically does not apply to divorced spouses divorced for at least two years.
- Lastly, the family maximum also does not apply for two earner couples who are receiving benefits based on their own earnings history (each qualifies for a benefit larger than 50% of the other spouse’s benefit) because the benefits are based on different earnings records. Note that a dependent might qualify on both records which brings a different set of rules to compute the family maximum.