Your Family’s Maximum Retirement Benefit

When a worker is receiving retirement benefits and/or members of his family are also receiving benefits based upon the retirement benefits, such as via spousal benefits, benefits for children, or other family members benefits, there is a maximum amount of benefit that can be distributed in total. (There is a separate maximum benefit computation for disability benefits, which we’ll cover in another article.)
How the Family Maximum Benefit is Computed

When computing the Family Maximum Benefit (FMB), the Social Security Administration falls back to it’s old habits of using a very convoluted formula, similar to the formula for computing the Primary Insurance Amount (PIA). The formula starts with the PIA, breaking it into four separate portions based upon Bend Points (these are not the same Bend Points as those used in determining the retirement benefit).

If you don’t want to follow the math behind the calculation of the Bend Points, you can go ahead and skip down to the last paragraph – there we talk about the actual computation for the current year.

The Bend Points for FMB are based upon when they were first calculated in 1979. At that time, the Average Wage Index (AWI) was $9,779.44 for 1977 (remember, the AWI is always two years behind) – and for 2008 the AWI is $41,334.97. Dividing the 2008 AWI by the 1977 AWI gives us a factor of 4.2267.

The original Bend Points were: $230, $332, and $433. Multiplying these Bend Points by our factor of 4.2267 gives us Bend Points of $972.14, $1,403.26, and $1,830.16. These are rounded to the nearest dollar.
Computation for the Current Year

So here’s how we use those bend points to determine the FMB, for a worker who becomes age 62 or dies in 2010 before attaining age 62:

1) 150% of the first $972 of the PIA, plus
2) 272% of the amount between $972 and $1,403 of the PIA, plus
3) 134% of the amount between $1,403 and $1,830 of the PIA, plus
4) 175% of the amount above $1,830 of the PIA.

The total of the four amounts is then rounded to the next lower multiple of $.10 if it’s not already a multiple of $.10.

Here’s an example:

A worker age 62 with a PIA of $2,000 has a FMB calculated as follows:

1) 150% times $972 = $1,458
2) 272% times $458 ($1,430 minus $972) = $1,245.76
3) 134% times $427 ($1,830 minus $1,430) = $572.18
4) 175% times $170 ($2,000 minus $1,830) = $297.50

Adding these together ($1,458 + $1,245.76 + $572.18 + $297.50) equals $3,573.44, rounded down to a FMB of $3,573.40 for this particular worker in 2010.

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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