Medicaid Liens and Estate Recoveries

What are Medicaid liens and estate recoveries?

medicaidFederal law encourages states to seek reimbursement from Medicaid recipients for Medicaid payments made on their behalf. There are two types of cost-recovery actions against the assets of Medicaid recipients: (1) real or personal property liens, and (2) recovery from decedent’s estate.

A Medicaid lien is a form of attachment against your property that signifies that someone else has certain rights or interests in your property. A lien makes it impossible for you to sell or refinance your property without the state’s knowledge and opportunity to collect. While federal law allows a lien to be placed on your home at the time you become a permanent resident of a nursing home, not all states have adopted such provisions.

Along with the use of lifetime liens, your state may be able to seek reimbursement from your estate after you die. For Medicaid purposes, the word “estate” has traditionally been construed as your probate estate; that is, property which passes under your will, not by beneficiary designation or operation of law. Therefore, assets held jointly with other people, assets held in trust, and assets held subject to a life estate, for example, would escape a Medicaid lien (because they were not part of your probate estate). Since 1993, however, states have had the option to expand the definition of estate to include all nonprobate assets as well (to the extent of your legal interest in such assets at the moment before your death). Thus, nonprobate assets may not be completely sheltered in certain states.

When may a lifetime lien be imposed?

If you’re a Medicaid recipient, your state can (at its option) attach a lien to your real or personal property (while you’re alive) in certain limited situations:

  • If a court judgment has proclaimed that Medicaid benefits were paid to you incorrectly; or
  • If, after notice and a hearing, the state has determined that you cannot reasonably be expected to be discharged from your nursing home (or other institution). In this case, however, the state may impose a lien on your real property only.

Despite the foregoing rules, no lien may be imposed on your real property while you’re alive if any of the following people is lawfully residing in your home:

  • Your spouse
  • Your child under age 21 (or your blind or permanently and totally disabled child of any age)
  • Your sibling who has resided in the home for a period of one year immediately preceding your date of institutionalization

If you’re a Medicaid recipient living in a nursing home and there is a sale of your house during your lifetime, the state can immediately recover its benefits out of the sale proceeds (assuming there’s a lien on the house). However, recovery is limited to that portion of the proceeds attributable to your ownership share. Therefore, if you hold title to the home jointly with your daughter, the state would be entitled to recover only one-half of the proceeds at the time of the sale.

In some states, the purchase of an older “qualified” long-term care insurance policy (i.e., purchased prior to OBRA ’93) will protect the house from the imposition of a Medicaid lien when you become eligible for Medicaid benefits. Thus, some people were able to purchase the minimum coverage necessary to qualify for this protection against the Medicaid lien.

When may an estate recovery occur?

After you die, the state is able to seek reimbursement from your estate, bearing in mind that estate could mean simply your probate estate or could have an expanded definition. Call your state Medicaid office if you are unclear about the treatment and standard practice in your state.

The state cannot enforce a lien or attempt estate recovery procedures until after the death of your surviving spouse (if any) and only if you have no surviving children under age 21 (or blind or permanently and totally disabled children). In addition, if a lien on your house already exists, no estate recovery may be made while any one of the following individuals is lawfully residing in your home:

  • Your sibling who was residing in the home for a period of one year immediately preceding the date of your institutionalization; or
  • Your son or daughter who was residing in the home for a period of at least two years before the date of institutionalization and who provided care to you during that period such that your institutionalization was prevented.

George was a Medicaid recipient who died at age 80 in a nursing home. The state had paid a total of $200,000 in Medicaid benefits on his behalf. George owned a house jointly with his wife, Martha, and Martha continues to reside there. However, George’s state has adopted an expanded definition of estate, which includes jointly owned property.

When George died, the state placed a lien on the family house. The state cannot force a sale of the house while Martha is alive, but when she dies, the state can force a sale of the home and apply one-half of the proceeds toward its recovery of the $200,000 Medicaid benefits it paid to George. Also, the state can collect immediately if Martha decides to sell or refinance the house at any time.

Your assets and funds that are exempt for purposes of determining Medicaid eligibility are not exempt from recovery proceedings. Exempt assets are those that do not affect your eligibility for Medicaid. Each state composes a list of exempt assets, which may include such items as one automobile and household furnishings. Therefore, the state can require the sale of any personal property of the estate to satisfy the Medicaid claim.

Assume George is a Medicaid recipient who dies while living in a nursing home. George owns one automobile (which his family used to visit him), a gold necklace and an expensive watch. After his death, the state is entitled to force a sale of the car and personal effects in order to recover part of the Medicaid benefits paid on George’s behalf over the years.

In states that have long-term care partnership programs, full estate recovery will not apply to individuals who purchase long-term care policies under the program, then qualify for Medicaid once their long-term care benefits run out.

A significant limit on the state’s power to go after assets is that it can only go after assets in your name at death, not assets in your spouse’s name. Also, as mentioned before, the state can only go after nonprobate assets to the extent of your legal interest in such assets at the time of your death. Therefore, if you transfer assets into an irrevocable income-only trust, retaining only the right to receive income from the trust, then the state would be entitled to collect only the present value of your income interest at the moment of your death. If you own a piece of property jointly with someone else, the state (if it adopts the expanded definition of estate) will be able to reach one-half the value of the property.

How can I avoid liens and estate recoveries?

First of all, it’s useful to summarize the rules:

  • The state cannot place a lifetime lien on your property while certain people reside there, such as your spouse
  • Any property in your probate estate can be reachable by the state to recover Medicaid benefits
  • If you have probate assets and you leave a surviving spouse (or the applicable categories of children), the state may file a lien against the property in your probate estate but cannot recover any money immediately
  • Property that passes outside of probate, on the other hand, will not be reachable by the state unless the state has adopted the expanded definition of estate
  • If the state has adopted the expanded definition of estate, then the state may recover against your nonprobate assets, but only to the extent of your legal share of that property

Since there is clearly an advantage to avoiding probate, you should plan accordingly before you need to enter a nursing home. You can avoid probate by using such tools as joint tenancy (i.e., joint ownership with rights of survivorship), irrevocable trusts, and gifts of property with a reserved life estate. A life estate is a planning tool that enables you to transfer ownership of your house while still giving you the right to live there during your lifetime.

Ronald transfers his home to his two children, Nancy and Pattie, reserving a life estate for himself. At the time of the transfer, Ronald’s life estate is worth 48 percent of the value of the home. Ten years later, after Ronald dies in a nursing home as a Medicaid recipient, the state seeks to recover from his estate. At his death, however, Ronald’s life estate is worth only 30 percent of the value of the home. Consequently, that’s all the state can collect.

Of course, if you anticipate entering a nursing home soon and don’t have time to engage in sophisticated planning, you should consider transferring your home to your healthy spouse’s name alone. The healthy spouse can then create a will, naming the children (or anyone other than the institutionalized spouse) as beneficiaries.

The Deficit Reduction Act of 2005 placed a restriction the use of life estates as a Medicaid planning tool. Life estates are still allowed, but the individual transferring a home using a life estate must live in the home for at least one year after the transfer to avoid a transfer penalty.

There are hardship exceptions to the estate recovery rules. Undue hardship might exist, for example, when the estate subject to recovery is the sole income-producing asset of the survivors and the income is limited (e.g., a family farm or other business). States must develop hardship exception criteria but may conclude that undue hardship does not exist if a Medicaid applicant created the hardship by resorting to estate planning methods to divest assets in order to avoid estate recovery. It is important, therefore, to know your state’s policy regarding hardship exceptions.

Myths and Facts about Social Security

Myth: Social Security will provide
most of the income you need in.

Fact:

It’s likely that Social Security will provide a smaller portion of retirement income than you expect. There’s no doubt about it–Social Security is an important source of retirement income for most Americans According to the Social Security Administration, more than nine out of ten individuals age 65 and older receive Social Security benefits.

But it may be unwise to rely too heavily on Social Security, because to keep the system solvent, some changes will have to be made to it. The younger and wealthier you are, the more likely these changes will affect you. But whether retirement is years away or just around the corner, keep in mind that Social Security was never meant to be the sole source of income for retirees. As President Dwight D. Eisenhower said, “The system is not intended as a substitute for private savings, pension plans, and insurance protection. It is, rather, intended as the foundation upon which these other forms of protection can be soundly built.”

No matter what the future holds for Social Security, focus on saving as much for retirement as possible. You can do so by contributing to tax-deferred vehicles such as IRAs, 401(k)s, and other employer-sponsored plans, and by investing in stocks, bonds, and mutual funds. When combined with your future Social Security benefits, your retirement savings and pension benefits can help ensure that you’ll have enough income to see you through retirement.

Myth: Social Security is only a retirement program.

Fact: Social Security also offers disability and survivor’s benefits. With all the focus on retirement benefits, it’s easy to overlook the fact that Social Security also offers protection against long-term disability. And when you receive retirement or disability benefits, your family members may be eligible to receive benefits, too. Another valuable source of support for your family is Social Security survivor’s insurance. If you were to die, certain members of your family, including your spouse, children, and dependent parents, may be eligible for monthly survivor’s benefits that can help replace lost income.

For specific information about the benefits you and your family members may receive, visit the SSA’s website at www.socialsecurity.gov, or call 800-772-1213 if you have questions.

Major Sources of Retirement Income

 myths

 

 

 

 

 

 

Note: Data may not total 100% due to rounding.
Source: Fast Facts & Figures About Social Security, 2013, Social Security Administration

 Myth: If you earn money after you retire, you’ll lose your Social Security

Fact:

Money you earn after you retire will only affect your Social Security benefit if you’re under full retirement age.

Once you reach full retirement age, you can earn as much as you want without affecting your Social Security retirement benefit. But if you’re under full retirement age, any income that you earn may affect the amount of benefit you receive:• If you’re under full retirement age, $1 in benefits
will be withheld for every $2 you earn above a
certain annual limit. For 2014, that limit is $15,480.• In the year you reach full retirement age, $1 in benefits will be withheld for every $3 you earn above a certain annual limit until the month you reach full retirement age. If you reach full retirement age in 2014, that limit is $41,400.Even if your monthly benefit is reduced in the short term due to your earnings, you’ll receive a higher monthly benefit later. That’s because the SSA recalculates your benefit when you reach full retirement age, and omits the months in which your benefit was reduced.

 

Myth: Social Security benefits are not

 

Fact:

You may have to pay taxes on your Social Security benefits if you have other income. If the only income you had during the year was Social Security income, then your benefit generally isn’t taxable. But if you earned income during the year (either from a job or from self-employment) or had substantial investment income, then you might have to pay federal income tax on a portion of your benefit.
Up to 85% of your benefit may be taxable, depending on your tax filing status (e.g., single, married filing jointly) and the total amount of income you have. For more information on this subject, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits.

 What Is Your Full Retirement Age?

If you were born in: Your full retirement age is:

1943-1954                                66
1955                                         66 and 2 months
1956                                         66 and 4 months
1957                                         66 and 6 months
1958                                         66 and 8 months
1959                                         66 and 10 months
1960 and later                          67

Note: If you were born on January 1 of any year, refer to the previous year to determine your full retirement

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are un-managed and cannot be invested into directly. The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor. LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

How can I get an estimate of my Social Security benefits?

 

social securityThe easiest way to get an estimate of your future Social Security benefits is to use the benefit calculators available on the Social Security Administration’s website, www.ssa.gov. You can estimate your retirement benefit based on your actual earnings record using the Retirement Estimator calculator, then create different scenarios based on current law that will illustrate how different earnings amounts and retirement ages will affect the benefit you receive. Other benefit calculators are also available that can help you estimate disability and survivor’s benefits. You can also sign up for an account so that you can view your online Social Security Statement. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor’s, and disability benefits. It also includes other information about Social Security that will be very useful when planning for retirement.

Social Security Claiming Strategies for Married Couples

middle age couple 2Deciding when to begin receiving Social Security benefits is a major financial issue for anyone approaching retirement because the age at which you apply for benefits will affect the amount you’ll receive. If you’re married, this decision can be especially complicated because you and your spouse will need to plan together, taking into account the Social Security benefits you may each be entitled to. For example, married couples may qualify for retirement benefits based on their own earnings records, and/or for spousal benefits based on their spouse’s earnings record. In addition, a surviving spouse may qualify for widow or widower’s benefits based on what his or her spouse was receiving.

Fortunately, there are a couple of planning opportunities available that you may be able to use to boost both your Social Security retirement income and income for your surviving spouse. Both can be used in a variety of scenarios, but here’s how they generally work.

File and suspend

Generally, a husband or wife is entitled to receive the higher of his or her own Social Security retirement benefit (a worker’s benefit) or as much as 50% of what his or her spouse is entitled to receive at full retirement age (a spousal benefit). But here’s the catch: under Social Security rules, a husband or wife who is eligible to file for spousal benefits based on his or her spouse’s record cannot do so until his or her spouse begins collecting retirement benefits. However, there is an exception–someone who has reached full retirement age but who doesn’t want to begin collecting retirement benefits right away may choose to file an application for retirement benefits, then immediately request to have those benefits suspended, so that his or her eligible spouse can file for spousal benefits.

The file-and-suspend strategy is most commonly used when one spouse has much lower lifetime earnings, and thus will receive a higher retirement benefit based on his or her spouse’s earnings record than on his or her own earnings record. Using this strategy can potentially boost retirement income in three ways.

  1. The spouse with higher earnings who has suspended benefits can accrue delayed retirement credits at a rate of 8% per year (the rate for anyone born in 1943 or later) up until age 70, thereby increasing his or her retirement benefit by as much as 32%.
  2. The spouse with lower earnings can immediately claim a higher (spousal) benefit.
  3. Any survivor’s benefit available to the lower-earning spouse will also increase because a surviving spouse generally receives a benefit equal to 100% of the monthly retirement benefit the other spouse was receiving (or was entitled to receive) at the time of his or her death.

Here’s a hypothetical example. Leslie is about to reach her full retirement age of 66, but she wants to postpone filing for Social Security benefits so that she can increase her monthly retirement benefit from $2,000 at full retirement age to $2,640 at age 70 (32% more). However, her husband Lou (who has had substantially lower lifetime earnings) wants to retire in a few months at his full retirement age (also 66). He will be eligible for a higher monthly spousal benefit based on Leslie’s work record than on his own–$1,000 vs. $700. So that Lou can receive the higher spousal benefit as soon as he retires, Leslie files an application for benefits, but then immediately suspends it. Leslie can then earn delayed retirement credits, resulting in a higher retirement benefit for her at age 70 and a higher widower’s benefit for Lou in the event of her death.

File for one benefit, then the other

Another strategy that can be used to increase household income for retirees is to have one spouse file for spousal benefits first, then switch to his or her own higher retirement benefit later.

Once a spouse reaches full retirement age and is eligible for a spousal benefit based on his or her spouse’s earnings record and a retirement benefit based on his or her own earnings record, he or she can choose to file a restricted application for spousal benefits, then delay applying for retirement benefits on his or her own earnings record (up until age 70) in order to earn delayed retirement credits. This may help to maximize survivor’s income as well as retirement income, because the surviving spouse will be eligible for the greater of his or her own benefit or 100% of the spouse’s benefit.

This strategy can be used in a variety of scenarios, but here’s one hypothetical example that illustrates how it might be used when both spouses have substantial earnings but don’t want to postpone applying for benefits altogether. Liz files for her Social Security retirement benefit of $2,400 per month at age 66 (based on her own earnings record), but her husband Tim wants to wait until age 70 to file. At age 66 (his full retirement age) Tim applies for spousal benefits based on Liz’s earnings record (Liz has already filed for benefits) and receives 50% of Liz’s benefit amount ($1,200 per month). He then delays applying for benefits based on his own earnings record ($2,100 per month at full retirement age) so that he can earn delayed retirement credits. At age 70, Tim switches from collecting a spousal benefit to his own larger worker’s retirement benefit of $2,772 per month (32% higher than at age 66). This not only increases Liz and Tim’s household income but also enables Liz to receive a larger survivor’s benefit in the event of Tim’s death.

Things to keep in mind

  • Deciding when to begin receiving Social Security benefits is a complicated decision. You’ll need to consider a number of scenarios, and take into account factors such as both spouses’ ages, estimated benefit entitlements, and life expectancies. A Social Security representative can’t give you advice, but can help explain your options.
  • Using the file-and-suspend strategy may not be advantageous when one spouse is in poor health or when Social Security income is needed as soon as possible.
  • Delaying Social Security income may have tax consequences–consult a tax professional.
  • Spousal or survivor’s benefits are generally reduced by a certain percentage if received before full retirement age.

Every situation is unique, so these strategies may not be appropriate for all couples. When deciding when to apply for Social Security benefits, make sure to consider a number of scenarios that take into account factors such as both spouses’ ages, estimated benefit entitlements, and life expectancies.

For more information about your options and the benefit application process, contact the Social Security Administration at (800) 772-1213 or visit www.socialsecurity.gov.

 

Social Security: What Should You Do at Age 62?

Even if you start collecting Social Security benefits at age 62, keep in mind that you still won't be eligible for Medicare until you reach age 65. So unless you're eligible for retiree health benefits through your former employer or your spouse's health plan at work, you may need to pay for a private health policy until Medicare kicks in.
Even if you start collecting Social Security benefits at age 62, keep in mind that you still won’t be eligible for Medicare until you reach age 65. So unless you’re eligible for retiree health benefits through your former employer or your spouse’s health plan at work, you may need to pay for a private health policy until Medicare kicks in.

Is 62 your lucky number? If you’re eligible, that’s the earliest age you can start receiving Social Security retirement benefits. If you decide to start collecting benefits before your full retirement age, you’ll have company. According to the Social Security Administration (SSA), approximately 74% of Americans elect to receive their Social Security benefits early. (Source: SSA Annual Statistical Supplement, 2012)Although collecting early retirement benefits makes sense for some people, there’s a major drawback to consider: if you start collecting benefits early, your monthly retirement benefit will be permanently reduced. So before you put down the tools of your trade and pick up your first Social Security check, there are some factors you’ll need to weigh before deciding whether to start collecting benefits early.

What will your retirement benefit be?

Your Social Security retirement benefit is based on the number of years you’ve been working and the amount you’ve earned. Your benefit is calculated using a formula that takes into account your 35 highest earnings years. If you earned little or nothing in several of those years (if you left the workforce to raise a family, for instance), it may be to your advantage to work as long as possible, because you’ll have the opportunity to replace a year of lower earnings with a higher one, potentially resulting in a higher retirement benefit.

If you begin collecting retirement benefits at age 62, each monthly benefit check will be 25% to 30% less than it would be at full retirement age. The exact amount of the reduction will depend on the year you were born. (Conversely, you can get a higher payout by delaying retirement past your full retirement age–the government increases your payout every month that you delay retirement, up to age 70.)

However, even though your monthly benefit will be 25% to 30% less if you begin collecting retirement benefits at age 62, you might receive the same or more total lifetime Social Security benefits as you would have had you waited until full retirement age to start collecting benefits. That’s because even though you’ll receive less money per month, you might receive more benefit checks.

The following chart shows how much an estimated $1,000 monthly benefit at full retirement age would be worth if you started taking a reduced benefit at age 62.

Birth Year Full Retirement Age Benefit
1943-1954 66 years $750
1955 66 years, 2 months $741
1956 66 years, 4 months $733
1957 66 years, 6 months $725
1958 66 years, 8 months $716
1959 66 years, 10 months $708
1960 or later 67 years $700

Source: Social Security Administration

If you want to estimate the amount of Social Security benefits you will be eligible to receive in the future under current law (based on your earnings record) you can use the SSA’s Retirement Estimator. It’s available at the SSA website at www.socialsecurity.gov. You can also sign up to view your online Social Security Statement at the SSA website. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor’s, and disability benefits, and other information about Social Security.

Have you thought about your longevity?

Is it better to take reduced benefits at age 62 or full benefits later? The answer depends, in part, on how long you live. If you live longer than your “break-even age,” the overall value of your retirement benefits taken at full retirement age will begin to outweigh the value of reduced benefits taken at age 62.

You’ll generally reach your break-even age about 12 years from your full retirement age. For example, if your full retirement age is 66, you should reach your break-even age at 78. If you live past this age, you’ll end up with higher total lifetime benefits by waiting until full retirement age to start collecting. However, unless you’re able to invest your benefits rather than use them for living expenses, your break-even age is probably not the most important part of the equation. For many people, what really counts is how much they’ll receive each month, rather than how much they’ll accumulate over many years.

Of course, no one can predict exactly how long they’ll live. But by taking into account your current health, diet, exercise level, access to quality medical care, and family health history, you might be able to make a reasonable assumption.

How much income will you need?

Another important piece of the puzzle is to look at how much retirement income you’ll need, based partly on an estimate of your retirement expenses. If there is a large gap between your projected expenses and your anticipated income, waiting a few years to retire and start collecting Social Security benefits may improve your financial outlook.

If you continue to work and wait until your full retirement age to start collecting benefits, your Social Security monthly benefit will be larger. What’s more, the longer you stay in the workforce, the greater the amount of money you will earn and have available to put into your overall retirement savings. Another plus is that Social Security’s annual cost-of-living increases are calculated using your initial year’s benefits as a base–the higher the base, the greater your annual increase.

Will your spouse be affected?

When to begin receiving Social Security is more complicated when you’re married. The age at which you begin receiving benefits may significantly affect the amount of lifetime income you and your spouse receive, as well as the benefit the surviving spouse will be entitled to, so you’ll need to consider how your decision will affect your joint retirement plan.

Do you plan on working after age 62?

Another key factor in your decision is whether or not you plan to continue working after you start collecting Social Security benefits at age 62. That’s because income you earn before full retirement age may reduce your Social Security retirement benefit. Specifically, if you are under full retirement age for the entire year, $1 in benefits will be withheld for every $2 you earn over the annual earnings limit ($15,120 in 2013).

Example:                 You start collecting Social Security benefits at age 62. You continue working, and your job pays $30,000 in 2013. Your annual benefit would be reduced by $7,440 ($30,000 minus $15,120, divided by 2).

Note:                 If your monthly benefit is reduced in the short term due to your earnings, you’ll receive a higher monthly benefit later. That’s because the SSA recalculates your benefit when you reach full retirement age, and omits the months in which your benefit was reduced.

Other considerations

In addition to the factors discussed here, other financial considerations may influence whether you start collecting Social Security benefits at age 62. How do other sources of retirement income factor in? Have you considered how your income taxes will be affected?

What about personal considerations? Do you plan on traveling, volunteering, going back to school, starting your own business, pursuing hobbies, or moving to a new location? Do you have grandchildren or elderly parents whom you want to help take care of? Every person’s situation is different.

For more information

Social Security rules can be complex. For more information about Social Security benefits, visit the SSA website at www.socialsecurity.gov, or call (800) 772-1213 to speak with a representative. You may also call or visit your local Social Security office.

Understanding Social Security

Over 59 million people today receive some form of Social Security benefits, including approximately 38 million individuals age 65 or older. (Source: Fast Facts & Figures About Social Security, 2011) But Social Security is more than just a retirement program. Its scope has expanded to include other benefits as well, such as disability, family, and survivor’s benefits.

 How does Social Security work?

The Social Security system is based on a simple premise: Throughout your career, you pay a portion of your earnings into a trust fund by paying Social Security or self-employment taxes. Your employer, if any, contributes an equal amount. In return, you receive certain benefits that can provide income to you when you need it most–at retirement or when you become disabled, for instance. Your family members can receive benefits based on your earnings record, too. The amount of benefits that you and your family members receive depends on several factors, including your average lifetime earnings, your date of birth, and the type of benefit that you’re applying for.

 

Your earnings and the taxes you pay are reported to the Social Security Administration (SSA) by your employer, or if you are self-employed, by the Internal Revenue Service. The SSA uses your Social Security number to track your earnings and your benefits.

 Social Security eligibility

You can estimate your retirement benefit online based on your actual earnings record using the Retirement Estimator calculator on the Social Security website, www.ssa.gov. Other benefit calculators are also available that can help you estimate disability and survivor’s benefits.

 

When you work and pay Social Security taxes, you earn credits that enable you to qualify for Social Security benefits. You can earn up to 4 credits per year, depending on the amount of income that you have. Most people must build up 40 credits (10 years of work) to be eligible for Social Security retirement benefits, but need fewer credits to be eligible for disability benefits or for their family members to be eligible for survivor’s benefits.

Your retirement benefits

Your Social Security retirement benefit is based on your average earnings over your working career. Your age at the time you start receiving Social Security retirement benefits also affects your benefit amount. If you were born between 1943 and 1954, your full retirement age is 66. Full retirement age increases in two-month increments thereafter, until it reaches age 67 for anyone born in 1960 or later.

 

But you don’t have to wait until full retirement age to begin receiving benefits. No matter what your full retirement age, you can begin receiving early retirement benefits at age 62. Doing so is sometimes advantageous: Although you’ll receive a reduced benefit if you retire early, you’ll receive benefits for a longer period than someone who retires at full retirement age.

 

You can also choose to delay receiving retirement benefits past full retirement age. If you delay retirement, the Social Security benefit that you eventually receive will be as much as 6 to 8 percent higher. That’s because you’ll receive a delayed retirement credit for each month that you delay receiving retirement benefits, up to age 70. The amount of this credit varies, depending on your year of birth.

 Disability benefits

If you become disabled, you may be eligible for Social Security disability benefits. The SSA defines disability as a physical or mental condition severe enough to prevent a person from performing substantial work of any kind for at least a year. This is a strict definition of disability, so if you’re only temporarily disabled, don’t expect to receive Social Security disability benefits–benefits won’t begin until the sixth full month after the onset of your disability. And because processing your claim may take some time, apply for disability benefits as soon as you realize that your disability will be long term.

 Family benefits

If you begin receiving retirement or disability benefits, your family members might also be eligible to receive benefits based on your earnings record. Eligible family members may include:

 

  • Your spouse age 62 or older, if married at least 1 year
  • Your former spouse age 62 or older, if you were married at least 10 years
  • Your spouse or former spouse at any age, if caring for your child who is under age 16 or disabled
  • Your children under age 18, if unmarried
  • Your children under age 19, if full-time students (through grade 12) or disabled
  • Your children older than 18, if severely disabled

 

Each family member may receive a benefit that is as much as 50 percent of your benefit. However, the amount that can be paid each month to a family is limited. The total benefit that your family can receive based on your earnings record is about 150 to 180 percent of your full retirement benefit amount. If the total family benefit exceeds this limit, each family member’s benefit will be reduced proportionately. Your benefit won’t be affected.

 Survivor’s benefits

When you die, your family members may qualify for survivor’s benefits based on your earnings record. These family members include:

 

  • Your widow(er) or ex-spouse age 60 or older (or age 50 or older if disabled)
  • Your widow(er) or ex-spouse at any age, if caring for your child who is under 16 or disabled
  • Your children under 18, if unmarried
  • Your children under age 19, if full-time students (through grade 12) or disabled
  • Your children older than 18, if severely disabled
  • Your parents, if they depended on you for at least half of their support

 

Your widow(er) or children may also receive a one-time $255 death benefit immediately after you die.

Applying for Social Security benefits

You can apply for Social Security benefits in person at your local Social Security office. You can also begin the process by calling (800) 772-1213 or by filling out an on-line application on the Social Security website. The SSA suggests that you contact its representative the year before the year you plan to retire, to determine when you should apply and begin receiving benefits. If you’re applying for disability or survivor’s benefits, apply as soon as you are eligible.

 

Depending on the type of Social Security benefits that you are applying for, you will be asked to furnish certain records, such as a birth certificate, W-2 forms, and verification of your Social Security number and citizenship. The documents must be original or certified copies. If any of your family members are applying for benefits, they will be expected to submit similar documentation. The SSA representative will let you know which documents you need and help you get any documents you don’t already have.

 

Social Security’s Survivors Benefits

Social Security Survivor’s BenefitsWhen you think of Social Security, you probably think of retirement. However, Social Security can also provide much-needed income to your family members when you die, making their financial lives easier.

Your family may be entitled to receive survivor’s benefits based on your work recordWhen you die, certain members of your family may be eligible to receive survivor’s benefits (based on your earnings record) if you worked, paid Social Security taxes, and earned enough work credits. The number of credits you need depends on your age when you die. The younger you are when you die, the fewer credits you’ll need for survivor’s benefits. However, no one needs more than 40 credits (10 years of work) to be “fully insured” for benefits. And under a special rule, if you’re only “currently insured” at the time of your death (i.e., you have 6 credits in the 13 quarters prior to your death), your children and your spouse who is caring for them can still receive benefits.

Survivor’s benefits may be paid to:

  • Your spouse age 60 or older (50 or older if disabled)
  • Your spouse at any age, if caring for your child who is under age 16 or disabled
  • Your ex-spouse age 60 or over (50 or older if disabled) who was married to you for at least 10 years
  • Your ex-spouse at any age, if caring for your child who is under age 16 or disabled
  • Your unmarried children under 18
  • Your unmarried children under 19, if attending school full time (up to grade 12)
  • Your dependent parents age 62 or older

This is a general overview–the rules are more complex. For more information on eligibility requirements, contact the Social Security Administration (SSA) at (800) 772-1213.

How much will your survivors receive?An eligible family member will receive a monthly survivor’s benefit based on your average lifetime earnings. The higher your earnings, the higher the benefit. This monthly benefit is equal to a percentage of your basic Social Security benefit. The percentage depends on your survivor’s age and relationship to you.

For example, at full retirement age or older, your spouse may receive a survivor’s benefit equal to 100 percent of your basic Social Security benefit. However, if your spouse has not yet reached full retirement age at the time of your death, he or she will receive a reduced benefit, generally 71 to 94 percent of your basic benefit (75 percent if your spouse is caring for a child under age 16). Your dependent child may also receive 75 percent of your basic benefit.

A maximum family benefit rate caps the total amount of money your survivors can get each month. The total benefit your family can receive based on your earnings record is about 150 to 180 percent of your basic benefit amount. If the total family benefit exceeds this limit, each family member’s benefit will be reduced proportionately.

You can get an estimate of how much your survivors might be eligible to receive using one of the benefit calculators available on the Social Security website, www.ssa.gov.

Don’t forget the lump-sum benefitIf you’ve accumulated enough work credits, your spouse may receive a lump-sum benefit of $255. Your spouse must have been living with you at the time of your death or have been receiving benefits based on your earnings record if living apart from you. If you’re not married at the time of your death, the death benefit may be split among any children you have who are eligible for benefits based on your earnings record.

If a loved one has died, contact the Social Security Administration immediatelyIf a loved one has died and you are eligible for survivor’s benefits, you should contact the SSA right away. If you’re already receiving benefits based on your spouse’s earnings record, the SSA will change your payments to survivor’s benefits (if your children are receiving benefits, their benefits will be changed, too). But if you’re not yet receiving any Social Security benefits or if you’re receiving benefits based on your own earnings record, you’ll have to fill out an application for survivor’s benefits.

It’s helpful to have the following documents when you apply, but if you don’t have all the information required, the SSA can help you get it:

  • Proof of death (a death certificate or funeral home notice)
  • Your Social Security number, as well as the deceased worker’s number
  • Your birth certificate
  • Your marriage certificate, if you’re a widow or widower
  • Your divorce papers, if applicable
  • Dependent children’s Social Security numbers, if available
  • Deceased worker’s W-2 forms, or federal self-employment tax return, for the most recent year
  • The name of your bank, as well as your account numbers, for direct deposit

Visit your local SSA office or call (800) 772-1213 for more information on survivor’s benefits and how to apply for them.