After writing my post on life insurance needs when having a baby, a reader mentioned he was disappointed I didn’t mention Social Security survivor benefits.
What’s funny is that I never think about Social Security when planning for my financial future. We all know Social Security is underfunded by 20% – 30%, and the government will likely raise the minimum age of retirement or cut benefits to make the program whole.
Nobody should expect anything in order to save and earn as much as possible while able. But the reality is we’ll all likely get Social Security benefits if we live long enough – just not 100% of what’s expected.
Unlike knowing every single passive income stream amount by memory, I had no clue what Social Security benefits I’ll be collecting at an “early retirement age of 62,” full retirement age of 67, or at age 70, until writing this post. I’m betting most of you have no idea either.
Everybody should go to ssa.gov and find out how much money they plan to get from Social Security when they retire, and how much Social Security survivor benefit their spouse or child will get if they were to die early. The amounts seem like free money, even though we paid 6.2% – 12.4% in FICA tax for years into the system.
Remember the post where I asked when do you finally feel rich? Seeing that I’ll be able to collect $2,050 – $3,610 / month in retirement is making me feel rich again!
Check out the chart below based on 17 years of paying the maximum income subject to Social Security tax. I made $27,730 in 1999, so that counts for something too.
Unfortunately, if you look at the last sentence, my numbers won’t hold unless I continue to make $118,500 a year until age 62! I’d love to continue making at least $118,500 a year as a retiree, but there’s no guarantees since life is so unpredictable.
In order to qualify for Social Security, you need to have worked for 40 quarters, totaling 10 years. You don’t have to work 40 consecutive quarters either. You can work for three years out of college, take a two year vacation by getting your MBA, and then work another eight years to show the world you didn’t waste all that time and money.
Once you’re at the 40 quarter mark, then can you consider retiring early. In other words, the earliest one should retire is between the ages of 28 – 32 (10 years past 18 years old or 10 years past 22 years old after you graduate from college). To retire before then is financially irresponsible.
Despite not being able to get the full Social Security benefits if I don’t continue to make $118,500+ for the next 22 years, my survivors are at least guaranteed to receive $2,197 a month and up to $5,127 a month total if I were to pass today.
$4,394 for my wife and child is huge because that will cover our entire primary mortgage plus maintenance and homeowners insurance expense. $4,394 = $52,728 a year.
Your unmarried children who are under 18 (up to age 19 if attending elementary or secondary school full time) can be eligible to receive Social Security benefits when you die. And your child can get benefits at any age if they were disabled before age 22 and remain disabled.
Besides your natural children, your stepchildren, grandchildren, step grandchildren or adopted children may also receive benefits under certain circumstances.
The survivor benefits duration up to age 18 – 22 seems reasonable. The important thing for the surviving spouse to do is properly save and invest the money so its there if needed once the child becomes an adult.
Early retirement survival is all about funding the gaps.
Let’s hope the federal government figures out an equitable way to make the Social Security program 100% solvent. Due to the massive stimulus programs that have now been launched to combat widespread unemployment, government debt is skyrocketing.
In the past, I paid no attention to the survivorship benefits until I started thinking about starting a family. Now I’m worried that the government will have to raise taxes and offload the massive debt burden onto our children.
Despite the instability of the government, I’m more willing to contribute 12.4% of annual income (business owners have to pay double) up to $137,700 (for 2021) towards Social Security given I have children. It’s still a lot of money, but at least I should get some income back in my 60s.
If you haven’t done so already, go to ssa.gov, create an account, and check out what you could get from Social Security. I’d love for you to share your results as well.
In the meantime, you should also familiarize yourself with all the different life insurance options out there. I like the simple term life insurance policy, however, I should have taken out a variable universal life police back in 2010. If I did, the cash value in the policy would have grown tremendously given it’s been a bull market.
The most efficient way to get competitive life insurance quotes after having a baby is to check online with PolicyGenius, the #1 life insurance marketplace where qualified lenders compete for your business.
It’s much easier to apply on PolicyGenius than go to each carrier one-by-one to get a quote. I’ve known the founders for years and they have truly built a fantastic resource for individuals and small business owners.
Social Security is definitely a type of life insurance. However, it’s always best to count on yourself instead of the government. Please get life insurance to protect your family.
Updated for 2021 and beeyond