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Investment shouldn't limit Social Security

Dear Dr. Don,
I am a young widow who received a small life insurance amount. I am considering purchasing a rental property, for a family member to live in, as a long-term investment. Are there any implications as far as my future and the widow benefits I receive from Social Security to take care of my three children?
-- Tammy Twixt

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Dear Tammy,
The survivors benefits you receive as a young widow are based on the age of your husband's children, not your income level. Here's what the Social Security electronic publication on the topic has to say about survivors benefits:

Social Security survivors benefits can be paid to:
  • A widow or widower full benefits at full retirement age, or reduced benefits as early as age 60. A disabled widow or widower may receive benefits as early as age 50.
  • A widow or widower at any age if he or she takes care of the deceased's child under age 16 or disabled, who receives Social Security benefits.
  • Unmarried children under 18, or up to age 19 if they are attending elementary or secondary school full time. A child can receive benefits at any age if he or she was disabled before age 22 and remains disabled. Under certain circumstances, benefits can also be paid to stepchildren, grandchildren or adopted children.
  • Dependent parents at 62 or older.

What if I work?

  • If you work while getting Social Security survivors benefits and are younger than full retirement age, your benefits may be reduced if your earnings exceed certain limits. (The full retirement age was 65 for people born before 1938 but will gradually increase to 67 for people born in 1960 or later.) To find out what the earnings limits are this year and how earnings above those limits reduce your Social Security benefits, contact us to request the publication, "How Work Affects your Benefits" (Publication No. 05-10069).
  • There is no earnings limit after you reach full retirement age.
  • Also, your earnings will reduce only your benefits, not the benefits of other family members.

What income counts ... and when do we count it?

  • If you work for someone else, only your wages count toward Social Security's earnings limits. If you are self-employed, we count only your net earnings from self-employment. We do not count income such as 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. If you have income that you earned in one year, but the payment was made in the following year, it should not be counted as earnings for the year you receive it. Some examples are accumulated sick or vacation pay and bonuses.
  • If you are self-employed, income counts when you receive it -- not when you earn it -- unless it is paid in a year after you become entitled to Social Security and earned before you became entitled.

Buying an investment property and receiving rental income from that property shouldn't influence the level of survivors benefits you receive from Social Security as a widow.

Note: Thanks, and a tip of the hat to James Ivers III, professor of taxation at The American College, for his help in understanding the issues surrounding Tammy's question.

Bankrate.com's corrections policy-- Posted: Nov. 18, 2005
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