Older Parents May Be Missing Out on a Social Security Benefit That Could Keep Their Mortgage Manageable

Navigating the intricacies of Social Security benefits can be daunting. Yet, taking the time to understand the steps and some complexities could help you maximize your monthly checks.

Underscoring this knowledge, a recent Allianz survey found that 55% of Americans say they don’t know much about the program or how it will fit into their retirement plan.

“That lack of understanding could lead to Americans missing out on strategically using the benefit as part of their overall retirement strategy,” according to Allianz.

For instance, there is a little-known Social Security benefit that could help older parents stretch their retirement income.

For older adults who are also homeowners and have to manage mortgage payments and all the additional costs associated with homeownership, these extra funds can make a difference in retirement and provide some breathing room.

Stephen Kates, CFP, financial analyst at Bankrate, says that in retirement, even a few hundred dollars of additional monthly income can make a meaningful difference in closing budget gaps.

“Every extra dollar coming in is one less dollar that needs to be withdrawn from retirement accounts to maintain your lifestyle. This boost to income is valuable not just because it’s consistent, but because it helps preserve and potentially grow invested retirement assets by reducing the need for withdrawals,” Kates says.

How older parents can claim the dependent child benefit

You can be eligible for the Social Security dependent child benefit under certain circumstances.

First, you must be at least 62 and receiving Social Security. If your dependent child is under 18 (or 19 if still in high school), you can receive up to 50% of your full retirement age (FRA) benefit.

It’s important to note that age 62 is considered early eligibility, age 67 is the FRA, and age 70 is when you get the maximum benefit, according to the Social Security Administration.

If you claim at 62, you'll see a significant reduction in your benefit for life. Waiting until FRA gives you 100% of your earned benefit, and waiting until 70 allows your benefit to grow about 8% per year past FRA.

Caroline Raker, a Registered Social Security Analyst at Clarity Financial Services, adds that if you claim your own Social Security early (for example, at age 63), your monthly benefit will be permanently reduced, but your child’s benefit is still calculated using your FRA amount.

For instance, if your FRA benefit is $1,800 per month, your eligible child could receive about $900, half of that amount.

And this applies to more than just parents.

“Grandparents or legal guardians who are raising a qualifying child can also receive these benefits on behalf of the child, as long as they meet the Social Security eligibility requirements,” she says. “This program is especially valuable for families supporting children with disabilities, since those benefits can continue into adulthood if the disability began before age 22.”

How much money are we really talking about?

The dependent benefit can make a significant monthly difference and help offset some costs associated with homeownership.

For instance, if a 63-year-old parent receives $1,800 per month in Social Security benefits, assuming the child benefit available would be about 50%, that would amount to $900 per month, totaling about $10,800 per year.

“Over the course of five years, this amounts to $54,000. Of course, this is assuming the total doesn't hit the family maximum cap. If it does, it could potentially reduce the child benefit or other auxiliary benefits,” says Steve Sexton, CEO of Sexton Advisory Group. The total of all payments on one worker's earnings record (including parent, spouse, and children combined) cannot exceed 150% to 188% of the worker's benefit. 

Sexton notes that every extra dollar of reliable income in retirement can improve housing cost flexibility. With the extra funds, one could allocate them toward mortgage payments, cover property taxes and home insurance, or even use them as a buffer for inflation.

“In short, this benefit—an incremental income stream—can be utilized to reduce how much of the parent's own retirement savings need to be spent on housing and/or accelerate debt repayment so housing costs become more sustainable over time,” Sexton adds.

How homeowners can use the extra income wisely

There are several ways to use this benefit, especially for homeowners nearing or in retirement.

Sexton says owners can use it to accelerate mortgage payoff by making extra principal payments.

“Doing so reduces interest cost and shortens the amortization schedule, meaning less total housing expense over the life of the loan,” he explains.

He adds that you could also use the extra funds to cover rising property taxes or insurance premiums, thereby preserving your mainstream retirement assets for other goals.

He also urges owners to use these extra funds to create a dedicated maintenance/repairs fund for their home, especially if they live in an older property that requires roofing, HVAC, and plumbing updates.

Another key piece of advice: maintaining an emergency fund even while paying down debt to avoid being forced back into borrowing when unexpected expenses arise.

“Without a financial cushion, emergencies can quickly compound existing debt problems,” says Bankrate’s Kates. “For retirees, having at least three months’ worth of expenses in cash is a minimum target. But a more prudent approach is to hold six or more months of expenses in a stable, liquid savings account.”

Finally, the smartest way to balance debt repayment versus liquidity repayment depends on someone's personal risk tolerance as well as market interest rates, according to Thomas Savidge, economist with the American Institute for Economic Research.

Strategies for debt liquidity offer peace of mind to cover expenses, while reducing debt can help free up money for long-term savings. In a high-interest rate environment, one may want to prioritize debt reduction. If interest rates are lower, someone may want to keep more cash available for emergencies, he says.

Finally, it’s worth noting that even with the best intentions and research, it can be helpful to consult with a Social Security expert or a financial adviser to maximize the benefits under your particular circumstances.