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What Are Social Security Credits for Retirement?

Learn how Social Security work credits and your lifetime of earnings affects your retirement benefits.

Since President Franklin Delano Roosevelt signed it into law in 1935, Americans have looked forward to the promise of having a safety net known as Social Security. This program was designed both for those who reach retirement age, and those who are rendered unable to work due to a disability. The amount of money one receives from Social Security, however, depends on the Social Security credits available to them. 

Social Security Credits 2020

  • What are Social Security Credits?
  • What’s Required to get Social Security Credits?
  • What is the optimal number of credits necessary?
  • How Does Age Affect Disability Benefits?
  • What type of Employment Earns Social Security Credits?
  • How Do Social Security Credits Work if I’m Self-Employed?
  • What If You Don’t Have Enough Credits?
  • How Can I Check My Social Security Credits?

Social security credits can vary depending on a wide variety of factors. But there are a few key things to take into consideration that may determine eligibility. The primary factors in this equation are one’s accrued work credits, their lifetime of earnings, and how it all relates to their retirement benefits. Age may also be a factor for those seeking Social Security Disability benefits.

What Are Social Security Credits?

Social security credits are the metric used by the government to determine who qualifies for Social Security. These credits are earned when workers pay into their Social Security tax through qualified wages. These credits will remain in place regardless of work history. Having gaps in employment does not affect the amount of overall Social Security credits that have been accrued. 

What’s Required to get Social Security Credits?

Social security credits are earned over one’s lifetime as they work and pay into the system through their Social Security taxes. As of 2020, the minimum threshold to earn a credit is $1410, with a maximum of four credits that can be earned per year. Even someone who earns as little as $5,640 in a year would still be able to earn their four credits. 

For most, this feat is easily achievable. But for others—due to mitigating circumstances—it is possible to fall short, and end up with not enough credits for Social Security retirement. If you are near retirement age and find yourself still under the Social Security 40 credits minimum, it can feel very frustrating.

Some people wonder, “Can I buy Social Security credits?” The answer is no. Social Security credits cannot be bought. They must be earned by working a qualified wage throughout your work history. 

What is the Optimal Number of Credits Necessary?

To qualify for Social Security, you must meet the bare minimum requirement, of having earned 40 Social Security credits. These credits do not need to be earned in consecutive order, and gaps in employment do not affect credits already earned. If you worked for several years and were then faced with a period of unemployment, the credits you had already amassed will still be there when you return to the workforce. Since 4 credits can be earned per year, most people can earn 40 credits within 10 years.

You might think that earning more than 40 credits would increase one’s benefits, but this not the case. Having at least 40 credits is simply the basic requirement, and once met, more credits do not lead to any additional Social Security retirement benefit. Instead, the benefit amount is based upon your average overall earnings throughout your lifetime. 

Your monthly Social Security check will be based upon this average of your earnings record, in addition to your retirement age. If you retire early (at age 62), you will receive a reduced benefit, whereas if you wait until your full retirement age, your benefit amount will be greater. When it comes to planning for Social Security, delayed retirement credits are indeed a viable strategy.

How Does Age Affect Disability Benefits?

When it comes to SSDI benefits, other factors involved in addition to the number of credits. In these cases, the age of the claimant seeking SSI disability is also a determining factor. For those who are under 24 years of age, benefits may be awarded with as little as 6 credits. A claimant over 31 however, will need 20 Social Security credits. The first step, however, is to complete a Social Security disability application. Fill out the appropriate SSDI forms and go from there. If you need further assistance you can also consult with a Social Security disability attorney.

What Type of Employment Earns Social Security Credits?

Defined in the broadest sense, the only income that counts toward gaining Social Security credits is—earned income from an eligible employer. This includes both those who work for some big company who take out a payroll tax and those who are self-employed. Both company employees and self-employed wage earners pay taxes into the Social Security system and earn Social Security credits by the year.

The big difference between employees and the self-employed is that the self-employed must pay both their portion and the employer portion (since they are their own employer) of their Social Security taxes. 

Some government employees, on the other hand, do not pay into Social Security. Instead, they are given their own “pension plans” controlled by the governmental body that employs them. For those that have both a pension and enough Social Security credits, they might be subject to the Windfall Elimination Provision, which is put in place to automatically reduce the amount of Social Security received. 

This provision is in place strictly for Social Security purposes, to make sure that individuals already being awarded a large pension are not receiving the additional “windfall” of a generous Social Security check as well. 

How Do Social Security Credits Work If I’m Self-Employed?

Those who work for someone else, have the luxury of having their employers taking the taxes out of every paycheck for them. With taxes automatically taken out of their paychecks, most employees don’t have much to worry about at tax time. If you are self-employed, however, it’s a different story. 

Without the company boss taking your taxes out one paycheck at a time, it’s up to the self-employed individual to do it for themselves. Unless the self-employed worker arranges to make quarterly payments, they will have to pay their taxes all at once at the end of the year. Having to deal with this huge bill, many self-employed workers are encouraged to create as many deductions as possible to reduce the load.

While beneficial in the short-term, this will have an impact on the amount of Social Security benefits that might be paid upon retirement. Self-employed individuals have a heavy tax burden to bear because from the standpoint of the IRS they are considered both the employee and employer.

This then means that they are expected to hold back Social Security taxes for their own “personal contribution” as well as what is considered their “business contribution.” It is for this reason that many try to reduce the amount with itemized deductions. 

As of 2020, self-employed taxpayers must earn at least $1,410 a year to be entitled to a Social Security credit. Like traditional employees, the self-employed worker needs to accumulate a total of 40 Social Security credits to be considered eligible for Social Security benefits upon their retirement—whether that’s at 62, or their full retirement age. 

What if You Don’t Have Enough Credits?

It can come as a rather stark realization to reach retirement age and realize that you don’t have enough Social Security credits saved up to retire. If you are only a few credits short and are able to work, the most logical course of action would be to simply work a little more, and pay a little more into the system, until you reach the 40-credit minimum to collect a Social Security check. If this is not possible due to severe disability, or if you simply have too great of a deficit in credits for this to be feasible—you may want to look into Supplemental Security Income.

For those over 65 years of age, blind, or disabled, who do not have enough Social Security credits, Supplemental Security Income is an alternative source of income. The only requirements are that you be a U.S. citizen or lawful resident, and have an individual income of less than $783 a month, or make less than $1,175 a month as part of a joint income with your spouse. Also, your “countable resources cannot go over $2000 for an individual income, or $3000 for a joint income.

How Can I Check My Social Security Credits?

The best way to check Social Security credits is to go to the main Social Security website at www.ssa.gov. The SSA (Social Security Administration) keeps a constant record of both your work credits and your earnings. You will have to create a my Social Security account before you can view your records. You can also simply call and inquire by phone (1-800-772-1213), or even arrange an appointment with a branch in person at a local Social Security office.

2020 Social Security Credits 

Social security is a great social safety net that all taxpayers fund, to ensure that they will be taken care of in their retirement. Many of us find ourselves quite perplexed by the time we reach that fabled finish line, wondering just how we can best make use of our Social Security. But once you are armed with proper knowledge of how Social Security credits work, the mystery is dispelled. 

There is one basic requirement for all Social Security recipients—you must acquire 40 Social Security work credits. Since most make 4 every work year without fail, 10 years in the workforce is usually adequate to meet this low bar. The amount you may receive in benefits depends on how much you earned. Benefit amounts are determined by an average of a person’s top 10 earning years. 

Still, some may be concerned that they might somehow fall short. What happens if I don’t get 40 credits for Social Security? Fortunately, even if you somehow miss the 40-credit threshold, there are still options available. You could qualify for supplemental security income which could serve as a direct alternative to receiving regular Social Security benefits. This could also apply to those seeking Social Security disability. Keep all of this in mind when considering your 2020 Social Security credits. 

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