The Viagra College Fund Phenomenon

Mary Beth Franklin (contributing editor for investmentnews.com) published an interesting piece recently. In it, she describes a Social Security benefit strategy which she titles The Viagra College Fund.

This college fund strategy applies to retirement age fathers with children who are still minors. These children can be your natural children, adopted children or dependent stepchildren.

The first step of the strategy is for you to reach the official retirement age. Once you hit full retirement age, your earnings cap is removed and you can continue to work without lowering your benefits. You are also allowed to postpone filing, electing to suspend your Social Security benefits instead.

If you have a child who is a minor, your suspension will automatically trigger a monthly payment for your dependent. This payment is worth 50% of the full retirement benefit you would receive.

To further improve the situation, the payments received by your dependent do not lower your future Social Security benefits. In fact, your retirement benefits will continue to grow based on delayed retirement credits at 8% per year. This process will carry on until you reach age 70, where delayed retirement credits cease.

However, the government is not limitless in their generosity towards taxpayers. If you have multiple children, there is a family limit (approximately 150%-180% of the basic benefit) set on the total amount of Social Security benefits that can be collected. If the total benefits payable to you are greater than this limit, the government will evenly diminish the payouts for any minors. You (the primary beneficiary) will retain your full benefit.

The Social Security rules surrounding the funds your children receive are fairly straightforward. First, there should be no conflicts of interest between your funds and your child’s. Second, you should not keep the money at home or mingle it with your personal funds. Finally, you are required to keep accurate records of the benefits you have been paid.

For older fathers with young children, this “Viagra Fund” plan may prove very valuable. By putting this money away into an investment account, US Savings Bonds or a 529 plan, you will be able to provide your child with money for a comfortable college savings fund or other expenses down the road.