Over the long holiday weekend there was a gathering of close friends at our house, and the conversations somehow landed on Social Security. It quickly became clear to me that there is ample confusion on this topic, even from people who are educated and professional (one of our friends is a CPA).
In this is blog post, we will be addressing two of the basic but critical numbers in Social Security: 10 and 35.
Eligibility Criteria: 10 Years of Credits
First step towards being eligible for any Social Security benefits is to have earnings to accumulate credits in the Social Security system. For 2016, every $1,260 of earnings will earn you 1 credit, and you can collect up to 4 credits in each calendar year. For example, as long as you make $5,040 or more this year, you will have earned all 4 credits allowed. Maximum credits you ever need is 40, or 10 years of history (continuity is not necessary).
Benefit Calculation: 35 Years of Earnings History
Just because you have 10 years of Social Security credits does not mean you will receive the full benefit amount. The retirement benefits of Social Security are calculated based on your top 35 years of earnings. This is where confusion arises; some people thought only the last 10 years leading up to retirement mattered, or only 10 years of earnings were needed.
Let’s say you have been in the work force since age 20, and now you are 65 getting ready to retire. Social Security will figure your retirement benefits by ranking at the 35 years with the highest earnings, adjusted for inflation.
One of the suggestions we give clients when they are close to retirement is to read their Social Security statement and make sure they have 35 years of earnings history in the system in order to get the maximum benefits. Sometimes it pays (big bucks) to keep working for a little longer.
There you have it, your beginners guide to Social Security.