My wife and I have begun planning for our future family, and that includes determining how much life insurance we need. To avoid purchasing excess life insurance, I looked up the tentative amount of the Survivor's Benefit generated by my earnings to date. I was pretty surprised at the amount payable to my child if I were to die this year: $2,144 a month!
That's a significant amount of money and one that suggests I can materially reduce the amount of life insurance that I would otherwise purchase. It also raises the following question: can I really trust this amount or is there some reason not to rely on this amount when calculating my life insurance needs?
For a number of reasons, I am assuming my wife will receive no Survivors benefit if I die and only one child (so no family maximum benefit issue). I really am just trying to understand if it is safe for me to assume that a single child will receive that quoted amount (or higher), or if there is some unforeseen risk or issue I am missing.
I am concerned because the average social security benefit is only $1,503 and the average Child survivor's benefit is only $600. So, would my child really get $2,144 per month if I died?
A little bit more background: I am 34 and have been making in excess of the social security wage cap for 4 years. I made $54,000 in 2015. In 2004 - 2014, I averaged only $11,000 per year in earnings.
Are my recent years of high earnings enough to push my calculated survivor's benefits so much higher than the average social security benefit? Separately, if I became a stay-at-home parent for the next 5 years and had $0 of earnings before dying in 2025, would those low earning years cause a reduction in the Child Survivor's Benefit Amount?
Any insight you can provide would be greatly appreciated and I hope you have a happy Thanksgiving!
Hi,
If you got that estimate from your 'my Social Security' account on Social Security's website, then the amount is likely accurate. The actual amount that your child could be eligible for in the event of your death is 75% of your primary insurance amount (PIA). A person's PIA for retirement benefit purposes is based on an average of their highest 35 years of Social Security covered wage-indexed earnings, but if a person dies prior to the year in which they reach age 62 then fewer years are used in the computation of their PIA for survivor benefit purposes.
If you died during the calendar year in which you reach age 34, your PIA would be based on an average of your highest 7 years of wage-indexed Social Security covered earnings. Based on your description of your earnings history, it sounds like your 7 year earnings average would be quite high. And, that in turn would result in a significantly higher than average PIA. A PIA of roughly $2,859, which would result in a surviving child benefit rate of $2,144, is certainly possible, so if your 'my Social Security' account gave you that figure then I think you can expect it to be accurate.
I should explain, however, that your PIA is not a stagnant figure and it could change significantly from one year to the next depending on your future earnings. For example, if you died in the year that you reach age 40, your PIA would be based on an average of your highest 13 years of Social Security covered wage-indexed earnings. Therefore, your child's survivor rate would depend on your age and your earnings history up to the time of your death.
Also, your child would only qualify for Social Security child benefits until he or she turns age 18, unless they are either still in high school at that time or if they are disabled. You may want to consider using our MaxiFi Planner (https://maxifiplanner.com/retirement-planning-maxifi) software to help you with your financial planning.
Best, Jerry
