Social Security benefits for grandchildren

Perhaps it is a sign of the times, but I have noticed an uptick in questions from InvestmentNews readers about the possibility of grandchildren being able to collect Social Security benefits on their grandparent’s earnings record. In some cases, they can, but the rules are very specific.

“I was with a client today and he and his wife have full custody of their grandson,” one financial adviser from White Plains, N.Y., wrote to me in an email recently. “If he started taking Social Security, would his grandson be entitled to Social Security benefits? Or would they need to fully adopt him in order for the grandson to receive this benefit?”

As with many of Social Security’s confusing array of more than 2,700 rules, the answer is “it depends.”

“If a child is not receiving benefits from a parent when the grandparent retires, becomes disabled or dies, the grandchild may be able to qualify for benefits if certain conditions are met,” the Social Security Administration states on its website. “Generally, the biological parents of the child must be deceased or disabled or the grandchild must be legally adopted by the grandparent.”

[More: How children can reap the benefits of Social Security]

To qualify for dependent benefits, the grandchild must have begun living with the grandparent before age 18 and received at least one-half of his or her support from the grandparent for the year before the grandparent became entitled to retirement or disability benefits or died, the agency explained. However, if the grandparents are already receiving benefits when they become responsible for the grandchild, they would need to adopt the child before he or she could qualify for Social Security benefits.

Last year, the Social Security Administration distributed an average of $2.6 billion in benefits each month to about 4.2 million children of parents or grandparents who are disabled, retired or deceased. To qualify for benefits, a child must be unmarried and under age 18 (or 19 if still in high school), or age 18 or older with a disability that began before age 22. Under certain circumstances, Social Security also can pay benefits to a stepchild, step-grandchild or adopted child.

Nationwide, about 2.5 million grandparents report they share a household with their grandchildren and are responsible for their needs, according to Census Bureau data. The numbers of grandparent-led households have increased in recent years, partly due to the national opioid crisis that has robbed children of their homes and parents, leaving their grandparents to pick up the pieces.

“Too often, moms and dads are falling victims to the epidemic and grandparents are stepping in to care for the children,” Sen. Bob Casey, D-Penn., said during a February hearing by the Senate Health, Education, Labor and Pensions Committee on the impact of the national opioid crisis on children and families.

“For grandparents, it can dramatically alter their life plans,” Mr. Casey said. “They postpone their retirement and keep working longer to be able to afford school clothes, child care and food, and some deplete their nest eggs and retirement savings to finance these new costs.”

“Grandparents stepping up to take on the role of primary caretaker of their grandchildren deserve our support,” he said.

In March, the Senate passed the Supporting Grandparents Raising Grandchildren Act co-sponsored by Sens. Casey and Susan Collins, R-Maine. Both of their states have been hard hit by the opioid crisis. The bill would create a federal task force to coordinate and disseminate information about critical resources on legal custody, social services, mental health counseling and other vital programs to assist grandparents raising their grandchildren. The bill must still pass the House before it can become law.

A child can receive up to half a parent’s or grandparent’s full Social Security retirement or disability benefit. If the child receives survivor benefits, they can get up to 75% of a deceased parent’s (or grandparent’s) basic Social Security benefit. But there is a limit to the amount of money a family can receive based on a worker’s earnings record.

The family maximum benefit limit ranges from 150% or 180% of a parent’s or grandparent’s full benefit amount. If the total amount payable to all family members exceeds this limit, each dependent’s benefit is proportionately reduced until the total equals the maximum allowable amount. The worker’s benefit is never reduced.