Social Security, the social insurance program signed into law in 1935, has provided financial protection for millions of people since its inception. Yet even though the program has been around for eight decades, it is so complex and has evolved so much that it can be difficult for average citizens to grasp what's covered and whether or not they qualify for benefits.
To give you some idea of how big the program is, the latest Social Security statistics suggest that in 2014, more than 59 million people will receive almost $863 billion collectively in benefits. Further, it's estimated that 165 million workers are covered by Social Security (i.e., they pay into it).
Survivor benefits: a brief overview
Recently, we examined the retired worker benefit in detail and, I hope, made it considerably easier to understand. Today, we'll switch gears and spell out the Social Security survivor benefit in detail so you understand whether your family members can qualify for benefits if you die, or, conversely, whether you can claim benefits on someone else who has passed away.
Of the nearly $863 billion being divvied out by the Social Security Administration in 2014, roughly 10% will be headed to those receiving survivor benefits. As of December 2013, this included about 6.2 million people.
As the SSA also notes, about one in eight of today's 20-year-olds will die before they reach the full retirement age of 67, so it's important to ensure that a person's family is financially protected upon their death. Luckily, as the SSA's data goes on to show, 96% of all workers between the age of 20 and 49 have survivor's insurance protection for their young children and the surviving spouse who takes care of their children.
How do I qualify for survivor benefits?
Just as we saw with the retired worker benefit, the path needed to achieve full survivor benefits for your loved ones comes through collecting work "credits." In 2014, workers receive one credit for every $1,200 they earn, and they can receive up to four credits per year. In other words, a worker who nets $4,800 in pay this year has earned four (the maximum) Social Security credits. In order to fully qualify for benefits, a worker needs to have logged 40 Social Security credits over their lifetime, or met the minimum earnings requirement in 10 years of work.
One thing worth noting, however, is that the Social Security Administration has a provision for younger adults who pass away but haven't reached the full 40-credit threshold. In this rare instance, the SSA will provide survivor benefits to the qualifying family members of a deceased worker if that worker had earned at least six credits over the previous three years prior to his or her death.
Who can qualify for survivor benefits?
Now that you have a better understanding of what it takes to qualify, let's turn our attention to which family members can qualify to receive your benefits if you pass away.
According to the SSA, there are basically four types of family members who may be eligible to receive survivor benefits: spouses, ex-spouses, parents, and children.
1. Your widow or widower
A widow or widower of a deceased worker is eligible to receive reduced benefits beginning at age 60 or to wait and receive full benefits at full retirement age (age 66 for those born between 1945 and 1956 and age 67 for those born in 1962 or later). Based on the SSA's data, a widow or widower taking survivor benefits at age 60 would see their benefit reduced by 28.5%. Of course, for some, taking their survivor benefit early would make sense because they'd immediately start receiving benefits instead of waiting another six or seven years to begin collecting. Each situation is unique.
But that's not all for widows or widowers. So long as they do not remarry, they can claim benefits at any age if they're taking care of the deceased spouse's disabled child who is under the age of 16. Widows and widowers also have a clause allowing them to claim survivor benefits as early as age 50 if they're disabled and their disability started within seven years or less of your death.
2. A former spouse
Your ex-spouse can also lay claim to your survivor benefits so long as they meet all the criteria listed above for a current widow or widower and provided that your marriage to them lasted at least 10 years. Best of all, benefits paid to an ex-spouse won't affect the retirement benefits being paid to your current spouse or other qualifying family members.
3. Your parents
Your parents may also be eligible to claim survivor benefits. In order for mom and dad to qualify, they need to be at least age 62 or older, and you must have covered at least half of their expenses.
4. Children and other relatives
Finally, children can potentially qualify if a number of criteria are met. First and foremost, they have to be unmarried and under the age of 18. If a child is attending secondary school on a full-time basis, the age cap is raised to 19. Also, if a child was disabled before age 22, and will remain disabled, then he or she can qualify for survivor benefits at any age.
In addition to your natural and adopted children, certain circumstances can allow stepchildren, grandchildren, and step-grandchildren to collect survivor benefits -- e.g., when they've been living with a grandparent and rely on that grandparent as their provider.
How much will my family receive?
Now that you have a better understanding of who qualifies and how to qualify for survivor benefits, let's examine the basics of how much those family members can collect in benefits.
So long as the aforementioned criteria are met, widows or widowers at full retirement age will receive 100% of your Social Security benefit, while those who choose to begin taking the survivor benefit early will net anywhere from 71.5% to 99% of that amount. Former spouses are subject to the exact same survivor benefits scale.
A disabled widow or widower between the ages of 50 and 59 would bring home 71.5% of your Social Security benefits, and a widow or widower caring for a child under age 16, regardless of age, will receive 75% of your benefits.
Dependent parents of the deceased are eligible to receive 75% each if both are still alive or 82.5% if one only is still alive.
Finally, children, regardless of which of the categories discussed above they fall into, are eligible to receive a 75% survivor benefit.
Altogether, the maximum survivor benefit a family can receive varies, but like the retired worker benefit, it ranges between 150% and 180% of your full retirement benefits.
Two more crucial things to remember
There are two additional things for you and your family to be aware of that we haven't yet covered.
First, the SSA pays out a special lump-sum death payment of $255 upon the death of a worker to eligible surviving spouses (those who lived in the house with the deceased at the time or who become eligible for benefits after his or her passing). If there is no eligible spouse, then this one-time benefit can pass on to a worker's qualifying child. Survivors have up to two years to claim this one-time benefit.
Secondly -- and this is very important in order to receive survivor benefits -- as a surviving beneficiary, you need to get in touch with the Social Security office as soon as possible. Even if the Social Security office is notified of the passing of your loved one, it doesn't mean you are necessarily set up to receive benefits that you might be owed.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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