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When you work and pay Social Security taxes, you earn up to a maximum of four “credits” for each year. Credits are based on your total wages and self-employment income during the year, no matter when you did the actual work. You might work all year to earn four credits, or you might earn enough for all four credits in a month. In 2017, you must earn $1,300 in covered earnings to get one Social Security work credit and $5,200 to get the maximum four credits for the year.
You need 40 credits — essentially ten years of work — to qualify for Social Security retirement benefits. If you stop working before you have enough credits to qualify for benefits, your credits will stay on your record. If you return to work, later on, you can add more credits so that you can qualify. No benefits can be paid if you do not have enough credits. Should you not have enough Social Security credits of your own, you may be able to get spousal benefits if you are at least 62 years of age and your spouse is receiving retirement or disability benefits. You can also qualify for Medicare at age 65. You can receive the spouse’s benefit no matter what your age is if you are caring for your spouse’s child who is under age 16 or disabled.
The dollar amount of your Social Security benefit is based on your lifetime earnings. Your actual earnings are adjusted or “indexed” to account for changes in average wages since the year the earnings were received. Then Social Security calculates your average indexed monthly earnings during the 35 years in which you earned the most and applies a formula to these earnings to arrive at your basic benefit, or “primary insurance amount” (PIA). This is how much you would receive at your full retirement age, depending on your date of birth. Finally, the age at which you claim your benefits determines your monthly payment.
At Carr Wealth Management, LLC, we specialize in identifying the optimal claiming strategy tailored to each client’s needs. Please contact us to schedule a no-charge consultation or if you simply have a question about Social Security Benefits or other financially related planning areas.