When you reach retirement age, you may be eligible to collect retirement benefits through the Social Security Administration. Your benefits are based upon your earnings record, so how much you work and how much money you make throughout your life determines how much you will receive in retirement.
In order to be eligible, you must have worked enough to earn the required number of credits, which is 40 credits, throughout your lifetime. You earn credits by making a certain amount of money each year. In 2018, you earn 1 credit when you make $1,320 from working. If you work and earn 4 credits each year, you will have reached the required amount of credits in 10 years, although there is no requirement that you earn 40 credits over the course of 10 years. This is helpful for people such as stay at home parents, who may not work a paying job during their children’s formative years, but can work before or after their children are grown and still be able to reach the 40 credit requirement.
The Social Security Administration takes the highest 35 years of your earnings, averages those earnings, and inputs that average into its formula to come up with your monthly benefit amount. As a caution: if you do not work for at least 35 years of your life before you retire, any years you do not work are considered zero dollars in the averaging, which will minimize your final benefit amount, so if it is possible, it is advantageous to work at least 35 years during your lifetime in order to maximize your retirement benefits.
When you retire, your own Social Security retirement benefits may not be as high as your spouse’s benefits, or you may not qualify for retirement benefits at all due to your work history. If that is the case, you can still receive retirement benefits based upon your spouse’s earnings record. A husband or wife can receive up to 50% of their current spouse’s Social Security Benefits after reaching the age of 62, as long as their spouse is also eligible to receive his or her own retirement benefits and has already applied for his or her own benefits. You can only receive one or the other though; you cannot receive the value of your own retirement benefits on top of the value of your spouse’s benefits. The Social Security Administration will award you the amount that is higher.
Andrea Nelson is an attorney at Hamblett & Kerrigan who focuses her practice in the area of estate planning, including wills, trusts, health and financial powers of attorney. Attorney Nelson can be reached at [email protected].