What Are Social Security Credits, and How Do They Work?

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Social Security has been a hot topic of conversation for years. Essentially, you pay into the system throughout your working years, then collect those benefits once you’re eligible.

Social Security checks primarily serve as an income stream for retirees, but benefits can also be claimed for people who are disabled or widowed. Regardless of the type of Social Security you claim, you must earn those checks through a system of credits.

You must earn a minimum amount of credits to qualify for Social Security benefits. The credits are earned through your income by paying Social Security taxes. The Social Security Administration does limit the amount you’re able to earn per year, though. Since 1978, the administration has allowed each working person to claim up to four credits per year. However, the amount of money it takes to earn each credit may vary from year to year.

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How much you need to make to earn credits

According to the Social Security Administration, the required dollar amount you must earn in exchange for one credit goes up each year to account for increases in average earning levels. In 2024, workers earn one Social Security and Medicare credit for every $1,730. To get the allotted four credits for the year, you must earn $6,920. Note that the credits you’ve earned stay on your record regardless of whether you change jobs or experience a gap in employment.

The requirements are a bit different when it comes to domestic work, farm work or employment through a nonprofit or religious organization that doesn’t pay Social Security taxes.

The minimum amount of credits you need to earn to receive benefits depends on the type of Social Security benefits you’re trying to collect. For example, anyone born in 1929 and after must earn at least 40 credits to claim retirement benefits. However, the guidelines get more complicated when claiming disability benefits.

Anyone who becomes disabled before 24 must earn at least six credits in the three years prior to developing the disability, according to the Social Security Administration. It’s even more complicated for workers who become disabled between 24 and 30. In this case, you likely need credits for half of the time between age 21 and the age your disability began. After age 31, a person with a qualified disability must have earned 20 credits in the 10 years prior to when their disability began.

The Social Security Administration defines a qualified disability as someone who’s unable to do work at the substantial gainful activity level due to a medical condition. Your medical condition must also prohibit you from doing previous work, or different work. And your condition must last for at least one year or result in death. In other words, the Social Security Administration pays benefits out to only those who are completely disabled. It cannot be paid to those with a partial or short-term disability.

About survivor benefits

The government also pays survivor benefits. These benefits are typically made to spouses and minor children. The number of credits needed for your family to qualify for benefits depends on how old you were at the time of your death. However, you don’t need more than 40 credits. If you have a family and die unexpectedly, a special rule allows the government to pay benefits to your spouse and children. They’ll be eligible to receive benefits so long as you have earned six credits in the three years prior to your death. If you’re receiving disability or retirement benefits at the time of your death, your spouse will be paid those benefits, and no credit redetermination is required.

For years, there have been concerns about the future of Social Security. The federal insurance program is funded through payroll taxes paid by employees and businesses each pay cycle. Benefits are then paid out from the Social Security trust funds, which are running low as spending outpaces income, Baby Boomers enter retirement and the population ages. The latest data from the Social Security Annual Trustees report indicates benefits could be slashed by 2035 if the federal government doesn’t take action either by trimming benefits or raising taxes. If that doesn’t happen, retirees post-2035 could receive only 83% of their full benefits.

Will Millennials and Gen Zers get benefits?

So what does this mean for younger generations?

As long as workers continue to pay payroll taxes, checks will continue to be paid out to those who qualify. As of now, workers who’ve paid into the system for at least a decade are entitled to claim partial benefits at 62. The administration says anyone born after 1960, who’s eligible, can claim full benefits at 67. This means working Millennials and Gen Zers are expected to receive benefits. However, they won’t be enough to cover every cost in retirement. (You can calculate your benefits on the Social Security Administration’s website.)

Social Security is a great program that has supported millions of Americans for decades. While its future is unknown, continuing to pay into the program can help ensure the program survives for future generations.

With that in mind, building savings of your own is also important. Building an emergency fund, opening an IRA and contributing to your employer-sponsored retirement plan can also help you boost your funds, helping you become more financially independent and reducing your dependency on federal programs.

Pat Simasko is an investment advisory representative of and provides advisory services through CoreCap Advisors, LLC. Simasko Law is a separate entity and not affiliated with CoreCap Advisors. The information provided here is not tax, investment or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Patrick M. Simasko is an elder law attorney and financial adviser at Simasko Law and Simasko Financial, specializing in elder law and wealth preservation. He’s also an Elder Law Professor at Michigan State University School of Law. His self-effacing character, style and ability have garnered him prominence and recognition throughout the metro Detroit area as well as the entire state.