Personal Finance

Donald Trump could use this Social Security strategy for his family. How to know if you qualify

Key Points
  • If you're an older parent with children under 18, you could increase your family income by claiming Social Security benefits on their behalf.
  • There are strict rules for claiming, and the money must be spent on expenses directly related to their care.
  • If you claim, you also want to watch how these funds change your family's overall financial plan — from how much your children make to how you invest for retirement.
US President Donald Trump and his son Barron (L) speak in the Rose Garden of the White House in Washington, DC, on November 21, 2017. 
JIM WATSON | AFP | Getty Images

Donald Trump, like many Americans in his age group, is eligible to collect Social Security. And so can Barron, the president's youngest son.

That perk is part of what the Social Security Administration calls family benefits.

To qualify, the agency has two tests: whether you're eligible to receive benefits on your own earnings record and whether you have a child or children who meet certain criteria.

The kicker: Your net worth is never considered.

The 72-year-old tycoon-turned-president is eligible for benefits based on his earnings record as a real estate mogul in New York.

And because 12-year-old Barron is underage, he would also qualify for Social Security payments on his dad's record — 50 percent of his father's benefit — until he reaches 18 or is out of high school. The maximum monthly check for a worker first claiming at full retirement age, is $2,788 in 2018.

Trump's wife, Melania, 48, may be able to collect benefits because she is caring for Barron, though those payments to her will stop once he turns 16. When she turns 62, she can start collecting spousal benefits.

It's unclear whether the president or his family are receiving benefits. An inquiry to the White House was not returned.

Many families who are eligible for these payments are surprised to find out about them, according to David Freitag, a financial planning consultant and Social Security expert at MassMutual.

"It's a big aha moment for many people to recognize that this benefit that they've paid for for 35 years will not only pay them, but will pay their dependents and children specifically to help fund their expenses," Freitag said.

Those extra funds can make a big difference.

"For couples who have children later in life, this is a substantial part of Social Security," Freitag said. "It's all good. There's no bad news here."

But just like everything else when it comes to Social Security, there are complex rules regarding eligibility.

Four ways retirees botch their Social Security benefits
Four ways retirees botch their Social Security benefits

Not all children will qualify

In order for your children to receive money from Social Security, you must have first filed for your own benefits, either because you have reached age 62 or you have become disabled.

That can trigger family benefits, and those payments may really add up.

A child may receive up to half of a parent's full retirement or disability benefits and up to 75 percent of a deceased parent's benefit.

For couples who have children later in life, this is a substantial part of Social Security.
David Freitag
financial planning consultant

In addition, the children must be your legal dependents, which means biological, adopted or stepchildren. Dependent grandchildren may be eligible for benefits as well.

The child must also be under age 18, or 18 to 19 years old if they are still in high school. They may be 18 or older if they are disabled.

The child must also be unmarried.

Benefits are subject to a family maximum

A family may receive anywhere from 150 percent to 180 percent of a parent's full retirement benefit. That is what the parent would receive when they claim benefits at their full retirement age, which for most is generally age 66 or 67.

Spouses who are caring for a child may also receive benefits until a child turns 16. They will continue to receive benefits past that age if a child is disabled.

A family's benefit may include parents and multiple children.

However, the total benefit will never exceed the 150 percent to 180 percent cap. If the family is approaching that limit, the Social Security Administration will proportionately reduce each individual's benefit.

"The family benefit is a maximum amount," said Gail Buckner, a retirement and financial planning strategist at Franklin Templeton. "If you have one child or you have 10 children, the family benefit amount is the same."

The good news for families is that as certain children age out, other dependents will get a bigger piece of the pie, Buckner said.

You can't use the money for whatever you want

The Social Security Administration has strict requirements for how you use children's benefits.

"This money has got to be allocated and spent for the children," Freitag said. "It has to be tracked and accounted for."

That means you cannot invest the benefit money in speculative investments, Freitag said. Safer choices — such as savings accounts or Treasury bills — are generally OK, he said.

In one case, parents who were investing their child's benefits in a 529 college savings plan were taken to task by the government, according to Buckner.

"Social Security came back and said, 'No, you're not using it for his current benefit. You're using it for his future benefit. Pay us back all the money,'" Buckner said.

Ignacio Ayestaran | Getty Images

To be safe, make sure the money goes to qualified expenses, such as clothes or school supplies for the child. And be sure to keep a careful record of what you spent, Buckner said.

When you claim matters

Just like when you're deciding when to take your own personal retirement benefits, age matters.

If you wait until your full retirement age — 66 or 67, when you receive 100 percent of your benefits — you will no longer be subject to the earnings test. That means the Social Security Administration will no longer withhold benefits if your income exceeds a certain level.

"You're getting your own benefit, plus you're getting the dependent benefit that could make a serious difference in your planning and budgeting for retirement," Freitag said.

At the same time, you need to be mindful of your child's age. Waiting until your full retirement age can sometimes mean your child will become too old to receive benefits.

"The child's benefit isn't really going to change," said Mark G. Smith, president of Vision Wealth Planning. "But the longer you wait to file, the fewer years you're going to get."

A kid with income could wipe out his own benefits

The earnings test not only applies to parents, but also to children as well.

Believing these Social Security myths could make you poorer in retirement
Believing these Social Security myths could make you poorer in retirement

So if your child is collecting Social Security benefits on your record, and comes into some significant earnings as well, that could eliminate the benefits, according to Smith.

A child's earnings would not offset the parents' benefits, Smith said.

Your own retirement plans could change

The extra income generated by family benefits should be taken into account when looking at your overall retirement plan.

That guaranteed income could change your investment strategies and ability to take on risk.

"This is guaranteed money that comes in every month, and it would absolutely be an important consideration from a planning perspective," Freitag said.

To find out how much benefits your wife or children may be eligible for based on your record, consult your Social Security estimated benefits statement, Smith said.

However, that information will only go so far in helping you to assess your options.

"Just like everything else with this discussion around Social Security, you have to run the numbers," Smith said.

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