Social Security Benefits & Work Credits – Planning for the Unexpected

Most people think of Social Security as a benefit that will come into play in retirement. But have you ever considered the scenarios in which you may need it before that? Recently we had the unfortunate case of a client who became disabled and could not claim Social Security due to insufficient work credits. It is a reminder for everyone about the importance of proper social security planning in all stages of life.

Earning Social Security Credits in 2020

In 2020, the income required to earn a Social security credit is $1,410 per credit up to the maximum of four credits per year.  Please note that not all income counts for purposes of work credit. Social Security only looks at “earned income” in its calculation so for most people, that includes wages, salaries, and self-employed income. Certain types of company benefits such as vacation pay and severance pay also count.

Work credits and various benefits

According to Social Security, one needs to earn various amounts of credits to be eligible for benefits. These amounts vary in accordance with the following types of benefits.

·       Retirement benefits

Anyone born in 1929 or later needs 40 credits to be eligible for retirement benefits.  Therefore, it is best to check your work credits a few years before your planned retirement. If you find out you don’t have enough credits, the best option may be to delay retirement and keep working long enough to get up to 40 credits. If that doesn’t work, then explore the possibility to claim based upon the work history of a spouse or ex-spouse.

·       Disability benefits
The amount of credits you need for disability benefits depends on your age when you become disabled:

  i.      Before age 24: you need 6 credits in the previous three years prior to you becoming disabled.

ii.      Between age 24-30: you need credits for half of the time between age 21 and the time you became disabled.  For example, if you become disabled at age 29, the formula works like this: 

29-21 = 8 years; 

Half the time is 8/2 = 4 years 

4 years *4 credits = 16 credits

16 credits are needed to qualify.

iii.      After age 31: You need at least 20 credits in the 10 years before you became disabled. The 10 year active work history is an important point to note because if someone didn’t work over a span of 10 years, then that person will be denied the benefit.

·       Survivor benefits
Generally, up to 10 years of work credits are required for one’s surviving spouse to claim this benefit-- with a few exceptions. Survivors of young workers may be eligible for this benefit if the deceased worker was employed for 1½ years during the three years prior to his or her death.

·       Medicare benefits
Medicare also looks at Social Security Credits to determine eligibility. In particular, this involves Part A of Medicare which is the coverage for hospital and inpatient medical costs. For most people, Part A is free of premium because throughout their working lives they have already paid in enough Medicare payroll taxes. In other words, if you have earned 40 or more Social Security credits, then you won’t have to pay the Part A premium. If you have not earned 40 credits, you’ll have to pay the monthly premium at various rates depending on the amount of credits you have.

A check list to maximize Social Security benefits

If you are looking to maximize Social Security benefits, here are a few things you can do.

·       Make sure your earning records with Social Security are accurate. Check your W-2 each year and verify that your SS number and earnings are reported correctly.

·       For those early in their careers, during high school or college years it is a good idea to get a job that will pay you at least enough to get six Social Security credits. This will ensure your eligibility for the Social Security disability benefit should you become disabled.

·       If you are approaching retirement and do not quite have 40 credits yet, consider delaying retirement and work until you earn enough credits. This will impact your retirement benefit as well as Medicare Part A premium.

·       For self-employed people, Social security is only interested in the ”net earnings from self-employment”. Be cautious of taking deductions to reduces taxes because that might minimize your benefits.  If you don’t file tax return to report your self-employment income, you have up to 3 years, 3 months and 15 days after the tax year to file a return and get Social Security credits.

Have questions on maximizing your Social Security benefits? Contact us to arrange a consultation as we’d love to share our ideas about keeping you on track.

Source: ssa.gov