Should I File Early So My Child Can Receive Benefits?

Jul 17 2016 - 12:30pm

I am married with a 13-year-old son and turning 62 next month. I've read that it might make sense to take social security at 62 in order for my son to start collecting social security benefits (hello college fund). I would like to continue working for a little longer, but hate
giving up the opportunity for my son to collect social security. Would it be possible (and desirable) for me to file for social security at 62 and continue working so that my son could collect his social security check. I know that I would fail the means test and therefore would not actually receive a social security check myself, but would my son be able to start receiving his social security check? What would be the argument against following that strategy?


A reasonable argument can definitely be made for filing for reduced benefits in order to also entitle a minor child to benefits, however, your child will not be able to receive any benefits unless you do as well.

The Social Security earnings test requires withholding of $1 in benefits for each $2 that you earn in excess of the yearly exempt amount, which in 2016 is $15720. The withholding applies not only to your benefit, but also to any auxiliary benefits (e.g. child, spouse) payable on your account. To explain, I'll give you an example.

Say your full retirement age benefit (PIA) is $2000. If you file at 62 your benefit will be reduced by 25%, or to $1500. Your son would be eligible for $1000 in this example, or one-half of your PIA. So, the total monthly benefit payable in this example is $2500 (i.e. $1500 + $1000). However, if you continue to work and earn say $65720, nothing would be paid to either you and your son until $25000 of benefits was withheld (i.e. $65720-$15720/2).

In the above example, nothing would be payable in 2016 if you became entitled in August or September, since only 4 or 5 months of benefits (i.e. $10000 or $12500) would be due before withholding. There is an alternate monthly earnings test, however, so if you held your earnings to below $1310 per month, you and your son could be paid regardless of how much you earned prior to your first month of entitlement.

If you continue the above example into 2017, Social Security would withhold benefits for the first 10 months of the year, which would cover the $25000 to be withheld. Then, benefits could be paid to you and your son for November and December. And, so on in future years. The exempt amount of earnings goes up in the year you reach full retirement age, and the withholding is reduced to $1 for each $3 of excess earnings.

Even if you plan to continue work, but will not earn so much that all of your and your son's benefits would be withheld, you may still want to consider filing early. Your benefit amount will only be permanently reduced for the number of months that you receive full payment prior to age 66. So, for example, if you file at 62 and all but 9 of your checks are withheld due to your earnings between ages 62 & 66, your benefit would be recomputed effective with age 66 to remove all but 5% of the initial 25% reduction that was applied to your benefit amount. If your PIA was $2000, that would mean an increase in the reduced amount from$1500 to $1900.

Also, you could still potentially suspend your benefits upon reaching age 66 and resume them at age 70, which would increase your monthly benefit by 8% per year of suspense, or a maximum of 32%.

The argument against taking early benefits is that the lower monthly rate continues for life, and also continues on to any potential widow's benefits payable on your account.

You may wish to give serious consideration to running the maximization software available on this website. It handles auxiliary benefits, delayed retirement credits, and the effects of Social Security earnings test, so it should make your best option much clearer.

Best, Jerry