Many people think of Social Security as just a government sponsored retirement plan. Some of your Social Security taxes, however, go towards funding survival insurance for workers and their families. In fact, average monthly 2004 Social Security benefit to widow or widower is $888. That’s often more than the value of individual life insurance policy a worker has. What’s more, if you have children, you don’t have to work the traditional 10years for your spouse or children to be covered. Under a special rule, if you have worked only one and one-half years in the three year period just before your death, benefits will be paid to your spouse and your children. Indeed, this year, an average young widow with two children will receive almost $2,000 per month (that’s $454,000 if paid over 15 years inflation adjusted-don’t forget to mention it to your life
insurance agent!)

Well, what’s the catch? There isn’t any, providing the widow(er) does not work after the spouse’s death. The survivor benefits will be reduced if the surviving spouse works and earns over certain amount. Social Security will deduct $1 from your benefits for every $2 earned above $11,640. Let’s say a recently widowed nurse earns $55,000/yr. Her survival benefit will go from the average of $888/mo, to zero. Children’s amounts will not be affected, however. It is important to note, that Social Security would only count earned income. Therefore, they will not count income from other government benefits, investment earnings, interest, pensions, annuities and capital gains. If you work for wages, income counts when it is earned, not when it is paid. Accumulated sick or vacation pay and bonuses will, for that reason, count when earned.

You do not have to have children for them to receive Social Security survivor benefit, after your death. If you provided at least one-half of the support to your dependent parents, they’ll obtain benefits as well (they must be
over 62 years of age).

Should we rest assured, knowing uncle Sam will provide? Today more than 152 million people work, so that over 45 million can receive monthly Social Security benefits.* Most of those recipients are retirees. According to Social Security Administration, the trust fund will be “in red” in just 14 years. That is, more money will be paid to recipients, than the Social Security taxes paid by workers and employers. In fact, without any reforms, Social Security trust fund will be exhausted in 2042. How old will you be then? There will be twice as many Americans aged 65 or older. The Administrations will only have 73 cents for each dollar of benefits. Western Europe, namely France and Germany is already under this financial burden. Citizens there feel uneasy with the respective governments having to recalculate and in effect lower their benefits. Let’s ask again “should you rest assured?”

While Social Security’s future is uncertain, current survivor benefits are a major source of income to many families that lost a wage earner. Such relative comfort should not, however, replace proper insurance planning. What are some of the actions you can take to supplement your family’s needs?

If you work for a large company, speak with your employee benefits coordinator. You’ll find that your employer is probably providing up to $50K of income tax free life insurance benefit to your beneficiaries. Often, you will have a choice of buying additional group life coverage that may be equal to two, or maybe even three times your annual salary.

Remember, this will be the most cost efficient way of providing coverage for your family. The premium amount will be deducted straight from your paycheck and may cost you as little as $10 or $20 per month.

If you are a professional, or self-employed, look into joining your trade association. Often the association, since it represents a diverse group of individuals, is able to get group-rate insurance discounts. That does not only apply to life, but also to health and disability insurance coverage. To summarize, in your insurance needs calculations, you should include the amount that Social Security will pay to your survivors. If you’re not sure of this amount, look for your Social Security statement. The Administration mails individual benefit statements annually, within 2 months or so of your birthday. You can also request one from You should also apply for the group life benefit with your employer. Only then you may consider applying for individual life insurance policy.

*Social Security 2004 booklet “Knowing your benefits”

Arthur Dolega is a Certified Financial Planner® practitioner. He lives in Middle Village with his wife and two daughters. He practices out of his Rego Park office on Alderton Street and 63rd Drive. Arthur develops and monitors investment strategies for individuals and small business owners for over six years now. His company, VISION Financial Services, assists in retirement, estate and business planning. He also sponsors workshops on education funding for children.

This Material is not intended to replace the advice of a qualified attorney, tax adviser, investment professional or insurance agent. Before making any financial commitment regarding the issues discussed here, consult with the appropriate professional.