The majority of us don’t see the initial 6.2% of our earnings, as it goes directly towards Social Security, with a key aim of providing a monthly retirement benefit in the future.
But consider this situation: What if you passed away unexpectedly? What becomes of all the money you’ve contributed?
Firstly, let’s dispel a common misunderstanding: Social Security doesn’t stash money in an account for each individual. Rather, your payroll taxes fund the Social Security trust, officially known as the Federal Old-Age and Survivors Insurance Trust Fund. Once eligible, you receive benefits from this trust. However, the Social Security Administration doesn’t hold a special reserve with your name on it.
Upon your death, your Social Security payments cease. If you pass away before starting to collect benefits, your estate cannot claim the money you contributed.
However, under certain circumstances, others might receive Social Security benefits based on your contributions. This is applicable for spousal benefits, ex-spouse benefits, and survivor benefits. Someone else may be entitled to a Social Security benefit based on yours, but it should not be construed as taking “your” Social Security.
If you have a spouse, ex-spouse or dependents, they could potentially qualify for survivor benefits upon your death. Here’s how this works:
For Those Who Have Never Married and Don’t Have Dependents
Post-death, no one will receive survivor benefits based on your contributions if you were never married and didn’t have children or other dependents. Your contributions simply become part of the Social Security trust and are used to meet its other obligations.
For Married Individuals
Your spouse can qualify for survivor benefits when they reach 60 (or 50 if disabled), assuming you were married for a minimum of nine months and they haven’t remarried. They’ll only receive the survivor benefit if it surpasses their own Social Security benefit; they won’t receive both.
Their benefit depends on whether you had started benefits before your death and how long they wait before claiming survivor benefits. The amount is 75% of your benefit if they’re caring for your child who’s 16 or younger or disabled, irrespective of their age.
For Divorced Individuals
Ex-spouses generally qualify for the same survivor benefits as current spouses, provided certain conditions are met. Claiming survivor benefits won’t affect your current spouse’s survivor benefit if you had remarried.
For Those With Minor Children
Unmarried children can qualify for 75% of your benefit until age 18 (or 19, if they’re still in high school). But remember, Social Security limits family benefits to 150% to 180% of your primary insurance amount.
For Those With Adult Children
Adult children won’t usually qualify for survivor benefits, except under specific conditions.
If Your Parents Are Your Dependents
Dependent parents could qualify for survivor benefits, but only if the survivor benefit is larger than their own.
Is Relying Solely on Survivor Benefits Enough?
While survivor benefits can provide financial assistance to your loved ones after your demise, they alone may not be sufficient, especially if you have young children. A survey by Value Penguin indicated that survivor benefits would leave a widowed spouse caring for two children with an average monthly deficit of $2,695.
Therefore, if you have dependents, life insurance is crucial. It is also important to maintain an up-to-date will and annually review beneficiaries of your 401(k) plan or Individual Retirement Account (IRA). The money you’ve paid into Social Security could aid your loved ones if you pass away suddenly. However, if you have dependents, relying solely on survivor benefits may not suffice.