Social Security offers a wealth of benefits to American families. Workers can receive retirement and disability benefits, while eligible family members can receive spousal, children's, or survivor benefits based on a related worker's Social Security record. However, the Social Security Administration imposes a family maximum limit on benefits that it pays on any one person's work history. That can have the impact of cutting the amount of monthly checks that family members would otherwise receive, but there are sometimes some things you can do to reduce the impact of the family maximum provisions.

How big is the family maximum?

The Social Security family maximum is actually a computed amount that the SSA determines each year. It's connected to the worker's primary insurance amount, which is the amount of money a worker will get if Social Security benefits start at full retirement age. The maximum is a percentage of that primary insurance amount, but the percentage varies depending on the size of the primary insurance amount. For 2017, the following numbers go into calculating the amount for retirement and survivor benefits:

  • 150% of the first $1,131; plus
  • 272% of the amount between $1,131 and $1,633; plus
  • 134% of the amount between $1,633 and $2,130; plus
  • 175% of the amount above $2,130.

That's complicated, but the way it usually works out, the family maximum ends up being between 150% and 180% of the worker's benefit.

Family with Social Security card.

Image source: Getty Images.

When does the family maximum typically matter?

In many situations, the family maximum never comes up in the retirement context. That's because there are few opportunities for children of retirees to be eligible for Social Security benefits, and the situations in which they are eligible are rare in practice. When there's only a worker and spouse eligible for benefits, the amount of total benefits doesn't exceed the family maximum.

The most common situation where family maximums do apply is in the survivor context. In a family with multiple children, a surviving spouse can receive a benefit of as much as 100% of the deceased worker's benefit, and eligible children will get up to 75% of the worker's benefit. Therefore, when there's more than one eligible child, then the family maximum kicks in.

Interestingly, benefits paid to a divorced spouse do not count toward the family maximum. They're also not subject to reduction even if a current spouse and family do end up having to accept reduced benefits because of the provision.

How does the family maximum work?

If the total benefits paid under a single person's work record exceed the family maximum, then the SSA reduces the secondary benefits paid. That means that the worker's own benefits are never reduced, but those received by spouses, children, and any other eligible family member are subject to reduction.

From a mechanical standpoint, benefits are reduced on a pro rata basis. So if a surviving spouse would normally be eligible to receive $2,000 per month and two children would get $1,500 per month each, but a $3,500 family maximum applied, then the spouse would get $1,400 and the two kids would each get $1,050. Those reductions all reflect the overall 30% cut due to the family maximum.

How can you get around the family maximum?

There's no good way to avoid the family maximum in a one-worker household. However, if both spouses worked, then a simple strategy might give your family a greater amount of total benefits. Rather than having the lower-earning spouse take spousal benefits based on the higher-earner's work history, claiming retirement benefits based on the lower-earning spouse's work history can maximize the family's total benefits.

That strategy runs counter to the usual situation, because often, the lower-earning spouse's own retirement benefit would be smaller than the spousal benefit. However, doing so takes the lower earner's benefit out of the equation for the higher earner's family maximum benefit, and that would allow children or other claimants to keep a greater portion of their overall benefits. The net result would be a higher total paid out to all family members.

The Social Security family maximum doesn't affect a huge number of families, but for those subject to its provisions, the reductions can be dramatic. By knowing how the family maximum works, you can come up with potential strategies that reduce or eliminate its negative financial impacts on you and your loved ones.