Social Security

How are Social Security credits calculated?

Each year you work, you earn a certain number of credits that go toward your retirement. When 40 have been claimed you can retire, though it may be too early.

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How are Social Security credits calculated?
Kevin Dietsch AFP

To be able to claim retirement benefits in the US, it is first necessary to earn 40 'credits', which can be earned during a year of work. The maximum that can be earned in a year is four but even if you reach 40 fast it is usually a bad idea to retire immediately.

In 2021, you receive one credit for each $1,470 of earnings. These credits count toward all Social Security payments, including Medicare. Benefits can be claimed without work, but will lead to a lower retirement fund compared to someone who has worked for most of their life.

Medicare

The Social Security credits you earn also count toward eligibility for Medicare when you reach age 65. You may be eligible for Medicare at an earlier age if you get disability benefits for 24 months or more. Those who have permanent kidney failure or get disability benefits because of amyotrophic lateral sclerosis (Lou Gehrig’s disease) do not have to wait 24 months to receive Medicare coverage.

Your dependents or survivors may also be eligible for Medicare at age 65 or earlier if they are disabled. People who have permanent kidney failure and need kidney dialysis or a kidney transplant may be eligible for Medicare at any age based on a spouse’s or parent’s earnings as well as their own.

Disability payments

It is unlikely you will need to earn the full 40 credits to claim Social Security disability benefits. This is because the amount of credits needed depends on the age of when the disability was acquired. A list of applicable illnesses can be found in this article.

If you become disabled before age 24, you generally need 1.5 years of work, the equivalent of six credits, in the three years before you became disabled. If you are 24 through 30, you generally need credits for half of the time between age 21 and the time you became disabled.

Credits needed to claim disability benefits after age 31

Disabled at age Credits needed Years of work
31 through 42 20 5
44 22 5.5
46 24 6
48 26 6.5
50 28 7
52 30 7.5
54 32 8
56 34 8.5
58 36 9
60 38 9.5
62 or older 40 10

Survivor benefits

When a person who has worked and paid Social Security taxes dies, certain members of the family may be eligible for survivors benefits. Up to 10 years of work is required to be eligible for benefits, depending on the person’s age at the time of death. Survivors of very young workers may be eligible if the deceased worker was employed for 1.5 years during the three years before his or her death.

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, as early as age 50,
  • A widow or widower of any age who takes care of the deceased’s child who is younger than age 16 or disabled, and receiving Social Security benefits,
  • Divorced spouses under certain conditions,
  • Unmarried children younger than age 18, or up to age 19 if they attend elementary or secondary school full time. Under certain circumstances, benefits can be paid to stepchildren, grandchildren, or adopted children,
  • Children who were disabled before age 22 and remain disabled,
  • Dependent parents, age 62 or older.

Why are they important?

There are multiple factors which affect how much you can claim in retirement Social Security payments. These are how much you have earned while earning these credits, your highest salary each year for 35 years, and the age at which you retire at.

Retiring too early could preclude you from earning more money in retirement, so it is usually best to hold off retirement as long as possible, at least until the full retirement age of 66-years old.