Social Security Survivors Benefits Could Take Care of Your Loved Ones

Source: 401kcalculator.org via Flickr.

This article was updated on Jan. 13, 2016.

When most Americans hear the term "Social Security," they think of the benefits that will become available after they retire. However, there are other valuable Social Security programs everyone should be aware of -- especially survivors benefits. Social Security survivors benefits could help provide for your loved ones in the event you die before reaching retirement age -- and you may be surprised at how good the benefits can be.

What are survivors benefits and are you eligible?
When you and your employer pay Social Security taxes, a portion of that money goes toward providing a form of "life insurance" designed to relieve the financial burden of a working adult dying prematurely. And, the benefits can be substantial – in fact, Social Security pays out more benefits to children than any other Federal program.

In order for your loved ones to be eligible for Social Security survivors benefits, you must earn enough "credits" to qualify. One Social Security credit is awarded for every $1,260 in wages you earn, and you can get up to a maximum of four credits per year. In order to qualify for Social Security retirement benefits, you need a total of 40 credits.

So, if you've earned more than 40 credits (earned more than $5,040 per year for 10 or more years), then your survivors are definitely eligible for benefits, as that is the absolute maximum any worker needs. Younger workers qualify for survivors benefits with fewer credits (depending on the age at time of death), and there is a special provision that says qualified children and spouses caring for those children are eligible if the deceased earned just six credits in the three years prior to death.

To find out if you're eligible, access your Social Security statement by creating a my Social Security account. On the left side of the statement, you'll see whether or not you've earned enough credits to qualify for the various Social Security programs.

Who can collect survivors benefits on your work record?
In order to receive survivors benefits on your work record, or to collect survivors benefits on someone else's record, the potential beneficiary must fit into one of the following categories.

• A widow(er) aged 60 or older (50 or older if disabled) 
• A widow(er) of any age (if they haven't remarried) caring for the deceased's child under age 16 
• The deceased's unmarried children under 18, up to age 19 if still in high school, or 18 and above with a disability that began before age 22
• In some cases, the stepchild, grandchild, or step-grandchild of the deceased
• Parents, if dependent on the deceased and over age 62
• A surviving divorced spouse of the deceased, so long as certain conditions are met (such as the marriage having lasted more than 10 years)

How much could they get?
In order to determine the benefit amount for your survivors, the Social Security Administration (SSA) starts with your the amount of benefits you would get if you reached full retirement age at your time of death. The benefits paid to your qualified survivors are based on a percentage of that amount. Below are the most common examples:

It's also important to note that there is a maximum amount of survivors benefits that can be paid out based on a single work record. The formula is a bit complicated, but it falls between 150% and 180% of the full benefit amount. If the calculated survivors benefits add up to more than that amount, then everyone's benefit amount is reduced proportionally.

Two examples
Let's consider a couple of examples to illustrate how this works.

First, consider a married 40-year-old man with one young child. If his full benefit amount is $2,000 per month, then his surviving spouse and child could each receive $1,500 per month in the event of his death. Since their combined benefits of $3,000 wouldn't be more than 150% of his full benefit amount, the benefits wouldn't need to be reduced.

In a more complicated scenario, let's consider the same 40-year-old married man, but with three young dependent children. Further, the man's 70-year-old father resides with the family and depends on his son for financial support. In the event of his death, all five survivors would be entitled to monthly benefits of $1,500 per month for a total of $7,500.

However, under the SSA's formula, the maximum total family benefit amount in this case would be $3,500, or 46.7% of the calculated benefit amount. So everyone's benefit checks would be adjusted accordingly, and they would each receive $700.

It could be even better than your life insurance
It's entirely possible that in the event of your premature death, the Social Security survivors benefits your loved ones would be entitled to could be greater than any life insurance policies you currently have. In the first example above, if the man's child were five years old, then his widow would receive $1,500 per month for 10 years (until the child is 16), and the child would receive benefits for at least 12 years. This adds up to a total of $396,000 in benefits, and that's not including the annual cost-of-living increases they'll receive.

So, when deciding how much life insurance you need, keep Social Security survivors benefits in mind.