Thursday, May 30, 2013

Money for Your Kids You Never Knew About

As a life lesson to me, my grandmother used to recite an old Austrian saying:
If someone gives you something, take it.
If someone takes something from you, scream.
This came to mind last week when my longtime hair cutter confessed to me that he had somewhat guiltily accepted an offer he had never expected.
Married late, he has a daughter in high school. When he  recently applied for Social Security, the agent explained that his daughter was entitled to  Social Security as well: $1,000 a month, about half the amount of his benefit. The payments last through 12th grade.
"I'm still working, but if they're going to give it to me, I'm taking it," he told me as he blow-dried my hair. "I would never have known about this if the agent hadn't told me."
If he had to vote on whether the child of a 66-year-old who still works and can afford to educate his child should get benefits, he would vote "No." But as long as it was handed to him ...
This got me wondering: How old would you have to be when your baby was born to still have that child in high school at age 66, when your full Social Security benefits kick in?
Answer:  48 or older at your child's birth.  (It's 44 if you're taking the reduced benefits at 62.)
That leaves few moms eligible with payouts for their student-children. But perhaps a lot of dads --and more in the future -- because a lot of men seem to increasingly move like snails when it comes to marriage and parenthood. (Ask my daughters!)
I also pondered: How many people, like my hair cutter, don't really need this benefit? Should it be means tested -- taking Social Security down that slippery slope?
Surprisingly, I found myself in agreement with a post last year on the conservative Heritage Foundation website headlined, "Social Security Pays Benefits to Millionaires' Children." It names an 80-year-old California congressman, Pete Stark, supposedly worth $27 million, whose children get Social Security. A writer in Investment News last summer called this the "Viagra College Benefit." She guessed it would be axed if Congress ever got around to reforming Social Security.
But according to the San Francisco Chronicle, Social Security experts say payments to well-off families are rare, with most children who get support doing so because a parent has died or become disabled. The benefits are intended to "help to provide the necessities of life for family members and help to make it possible for those children to complete high school," a Social Security spokesperson said.  
 The "student benefit," started in 1939, is aimed at assuring that the children of retirees finish high school, rather than being forced to take a job to help support the family.  In 1965, amendments to the Social Security Act extended the benefit to age 22 -- through college. 
Bad idea. 
"In the peak year of 1977, almost 900,000 students were receiving this type of benefit, according to a history written by the agency. "In the peak pay-out year of 1981, almost $2.4 billion was paid in the form of student benefits."
That's when Congress finally acted to phase out the college add-on.
A 2011 study by the Social Security Administration, based on 2004 data, found that about 9 percent of all children receiving OASDI (Old Age, Survivors and Disability Insurance)  get it for "old age," simply because a parent has retired. (The other 91 percent are to children of a disabled or deceased parent.) The average payment in 2004 was $426 a month to each of the 278,000 "old age" student recipients.
The study concluded that "although some children in this category are well off, a substantial segment exhibits financial vulnerability."
Today, according to Social Security's latest statistical snapshot, 634,000 students get SS benefits because a parent is retired, with the average payment of $621 a month. (See, the numbers are climbing!)
So, what do you think about this? If offered to you, will you take it? Or if taken away, will you scream?

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