As I understand it, a person has to have 40 Social Security credits in order to qualify for retirement benefits. I should be on pace to get to 40 credits by age 33 or 34.
Does this mean that someone could “retire” in their mid-30s and begin drawing Social Security retirement income for the rest of their life, but that those checks would be very, very, tiny amounts?
I am curious to see the answers here. In the UK, 35 years of credits are required to qualify for the State pension, but that is not paid until you reach (for most people now) 67 years of age. The kicker is that you have to keep making the payment as long as you keep earning.
You can’t draw social security retirement benefits until you reach age 62 at minimum. Full retirement benefits (for your age group) require you to defer until age 67. This may change between now and then.
The social security credits are just a bookkeeping measure to ensure that you are entitled to benefits under the system.
ETA: Social Security also administers disability benefits for people with enough work credits; those are not age-limited.
You must have the minimum 40 credits to qualify for social security. You don’t become eligible for social security until you attain the defined retirement age based on your year of birth. Keep in mind social security uses an average of 35 active working years to help determine your monthly benefit.
So if you earn the 40 credit quarters in ten years (say 21 to 31), then wait until you are 65-68 years old to be eligible for benefits, the 25 plus years you did not work nor invest in social security will seriously count against you, probably to the point your benefit is meaningless.
No. From the SSA website: “Remember, the earliest a person can start receiving Social Security retirement benefits will remain age 62.”
Ah, gotcha, thanks.
I think this is based on the theory that a person’s annual income increases year over year to a peak somewhere in their late 50’s/early 60’s. However, with increasing age discrimination in hiring and the increasing eagerness of companies to lay people off, I think we have a much larger, and growing, contingent of workers who’s annual incomes may peak much earlier in their lives. Or in other words, I think the scheme was set up on the basis of one large bell curve of earnings in a person’s life, but I think the future “way of things” will be for people to have many little bell curves.
Just to clarify the 40 credits. Each credit is for a quarter so you’d acquire 40 credits in 10 years of working. Also, when calculating average SS contribution over your working career, each year’s earnings contribution is adjusted for inflation so you are not (severely) penalized for having high income only at an early age. It doesn’t work out totally even but not as bad as you’d think. But then once you’ve got 35 years of contributions, continuing to work (and make more contributions) only minimally increases your benefits, if at all. Also, the benefits calculation is not linear with your contribution to SS. There are two bend points in the curve such that if I made twice as much as you over our same life times my benefits are not double yours. Visit the SS website for details.
Good post overall. The above piece can be misleading. What you say is true for someone who makes about the same inflation corrected annual wage throughout each of their 35 years.
But for someone who had a few low-earnings years due to childbirth, or part time work or layoff or whatever, OR for somebody who’s seen career progression and makes more inflation corrected money at a late age, then working and contributing past 35 years can make a big difference.
If you put in 5 full-time years at your age 60-65 wage those years can replace some early years spent in grad school or starting a family or bumming around the country or whatever you did which earned you but a pittance way back in your 20s.
A completely separate issue is this: your so called basic benefit is computed on the best 35 years’ earnings. That’s what you’d get if you retired at 65 in 2016. Higher ages will apply for now-younger folks as they approach 65. That same person can get benefits early at 62, but take roughly an 8%/year hit on what they’ll get. Likewise they can postpone receiving their benefits until age 70 and get a roughly 8% per year increase in exchange.
All this has lots of deeper gotchas and what-if’s. And of course is subject to some Congressional meddling between now and whenever you get yours.
I’m not doing it, but since benefits increase at 8% a year from 62 to 70, I wonder what the payment would be if you decreased them at 8% a year to 40. Not a whole bunch, I suspect.
0.92^22 = 64%
So from the already reduced age 62 benefit you’d get just 64% of that.
The other thing is that at age 40, even if you started working at age 15 you’d only have 25 years of earnings, not 35. So your basic age 65 benefit would be further reduced due to that.
If you index the benefits at 62 as 100, then the benefits at 70 after 8 years of 8% increases would be 185.
Now decreasing them for 22 years would give you 16, but it’s more accurate to ask the question “what would they have to start at for 22 years of 8% increases to get us to 100 at 62?” and the answer to that is 18.
Actually I screwed that up.
0.98 ^ 22 = 64%. I typo-ed that. The right calc is
0.92 ^ 22 = 16%.
So you’d get 16% of the reduced age 62 benefit. Compared to the “full” age 65 benefit it’s be 0.92 ^25 = 12%.
As to Naita’s point, the 8% is a WAG anyhow; the actual rules are pretty arcane and it’s not clear, at least to me, whether running the calc as an 8% cumulative discount downwards or as 8% cumulative growth upwards is closer to the actual rules.
Remembering the rules are the result of legislation and need have no mathematical or accounting logic behind them. They might start out that way, but the sausage-making usually pollutes whatever logical purity they may have started from.