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This Little-Known Social Security Trap Could Leave You With No Benefits

Social Security is a key part of your financial security in retirement, but many people don't realize that they're not even eligible to receive Social Security benefits. One little-known rule often gets ignored until it's too late for unsuspecting retirees.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, talks about this trap for the unwary. Dan notes that to qualify for retirement benefits, you have to have earned 40 Social Security credits over the course of your lifetime. Dan points out that it's not hard to earn the credits, with earnings of just $1,200 producing one credit in 2014. But because you can only earn a maximum of four credits a year, the requirement essentially leaves those without 10 years of work history unable to claim benefits based on their own work history. As a result, those who start their careers late need to be mindful of the rule in order to avoid mistakenly believing that they've already earned Social Security benefits.

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Read/Post Comments (25) | Recommend This Article (48)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 20, 2014, at 11:52 AM, GuitarJim wrote:

    Dan, your video explains this in a manner that gives the impression that you don't even understand it very well.

    Those credits are meant to represent calendar quarters of work and, more importantly, qualifying taxes. That's why you can only earn 4 credits a year. In addition to working, however, it's crucially important that you also pay Social Security taxes during that time. If you had a job that was exempt from Social Security taxes, or you were self employed and didn't pay the self employment taxes, then you wouldn't earn a credit with the SSA.

    Another important point is that SSA credits ALSO apply to Medicare. If you don't qualify for SSA retirement benefits then you also don't qualify for full Medicare benefits. Medicare part A is usually free, but not if you don't have 40 SSA credits.

    Finally, your SSA retirement benefits are based on your FICA tax payments in then 10 years when those payments were at their highest. There is an upper limit on those benefits which corresponds to the annual cap on FICA tax payments.

    For young immigrants, don't plan on sponsoring mom and dad to immigrate to the US unless they have at least 10 working years left in them, or either of you are financially well off since they won't qualify for either Social Security retirement or Medicare once they get here.

  • Report this Comment On January 20, 2014, at 12:41 PM, JustinKhase wrote:

    So if one lacks the credits for eligibility what happens to whatever they DID pay into it ? Do they get a lump sum payment or does the government just take the money (and whatever accrued interest it earned) ???

  • Report this Comment On January 20, 2014, at 12:53 PM, Dadw5boys wrote:

    Americans have forgotten the old Farmer Social Security Payments. Farmers use to pay the minimum into the system each year for themselves and wives who did not work outside the home.

  • Report this Comment On January 20, 2014, at 1:29 PM, billerjerry wrote:

    I would like to know the same thing. If someone has earned ,say, 25 points and are unable to work and receive the 40 to be eligible, what does the government do with the money that they did pay into the system. It seems to me they should return at a minimum, the amount that was paid into it.

  • Report this Comment On January 20, 2014, at 1:55 PM, freeloaders wrote:

    Wake up, this is not welfare. The payments you make are than returned to you at retirement.

  • Report this Comment On January 20, 2014, at 2:32 PM, leecee125 wrote:


    T R A P ? ? it's not just a



  • Report this Comment On January 20, 2014, at 2:39 PM, oddharold wrote:

    Dad, biller, Social security is an insurance program. Like many life insurance programs, If you don't pay the premium for the prescribed initial period, you don't get the benefits.

    You can't say, "I made 11 payments(if you need to make 12 to qualify), so I should get the full benefits."

  • Report this Comment On January 20, 2014, at 3:04 PM, DaTourist wrote:

    Unlike the Detroit pensioners, we have no vested property right in Social Security. If Social Security goes busted, there will be no Federal bankruptcy adjudication of assets, and we will receive not one red cent on the dollar. The Detroit pensioners are much better positioned than Social Security recipients.

  • Report this Comment On January 20, 2014, at 3:44 PM, dooel wrote:

    SS is based on highest 35 years not 10.

  • Report this Comment On January 20, 2014, at 5:24 PM, carmeno wrote:

    What do you know. You don't work, you don't get credits, unless you're a spouse, then you don't work and still get benefits (still trying to figure that out). Then there are the never worked, like my former brother in law, who was an alcoholic from the time he was a kid and he's still getting benefits 50 years later because he is "disabled". (Minor children of dead parent, I do understand, so it's not like I'm heartless.) Considering that it's only 40 credits and many of us probably earned a couple of hundreds (50 years times four equals 200 (for the math impaired). Should the ones who never made it to 20% of that lose what they put in, sure all they had to do was a total of ten years out of 46-50 years of adulthood. For those who never get a letter telling them how much they still need to meet the minimum now, FYI anyone who is old enough to get Social Security now, got many letters telling them how much they still needed. If they claim they didn't know, they never read the letters. I certainly did.

  • Report this Comment On January 20, 2014, at 7:33 PM, DaraStone wrote:

    I am so Confused.My Husband worked and Paid Into SS sence he was 16 yrs of age.(BORN 1947).He has More then Enough Credit's.But became Disabled in 1994.And Was Getting SSDI.As of AUG, 2013 He Turned 66..Recieved a letter telling him he is now Fully Retired.And is No Longer Eligible For SSDI. But Won't Get His Full Retirement Bennifit's.Only The Amount He Was Recieveing On SSDI.NOONE WILL GIVE US A STRAIGHT ANSWER AS TO WHY?And many People that we have Discussed this with say this isn't right.And That He Should Have Been Getting A Medical Card While On SSDI.WHICH HE Didn't.AND ON TOP OF THE 100 SOMETHING THEY WERE AND ARE TAKING OUT FOR HIS MEDICARE,HE WAS AND IS STILL PAYING FOR MEDIGOLD.AND ALL THE COPAY'S.CAN ANYONE EXPLAIN TO ME WHY HE WON'T GET HIS FULL RETIREMENT.HE WANTS TO KNOW.WE EVEN HAD TO GET A LEGAL SEPERATION .I HAD TO MOVE OUT OF OUR HOME OF 27 YR'S.HAD TO HAVE MY NAME REMOVED FROM THE DEED TO THE HOUSE ETC.OR LOSE MY MEDICAL.I HAVE A HEART CONDITION SO WE HAD NO CHOICE.


  • Report this Comment On January 20, 2014, at 7:38 PM, DaraStone wrote:


  • Report this Comment On January 21, 2014, at 5:25 AM, Micara wrote:

    DaraStone, When you are on SSDI, you are already receiving your Full Retirement Age benefit, which is why it would not increase at your Full Retirement Age. All that happens is that your work restrictions are lifted. It would not increase unless you had worked while disabled. And you are only allowed to work while disabled if you make under $1070 (for 2014) otherwise it is considered Substantial Gainful Activity (SGA) and your benefits would cease.

    The only way you living in a household would affect his benefits is if he is on SSI, which is the welfare program for people who have not worked and paid into Social Security. For that program, all income and living arrangements count. For SSDI, all that matters is if the person is working over SGA or not. Hope this helps.

    Oh, and the earliest you can apply for retirement benefits is age 62. It would be your Full Retirement Benefit but reduced for age. Anytime you take your benefit earlier than your full retirement age, it is reduced, unless you are found disabled and are on SSDI.

  • Report this Comment On January 21, 2014, at 7:20 AM, Newby70 wrote:

    If you have not worked and earned at lease 40 quarters of coverage in your lifetime then you are ineligible to draw on your own earnings record. There are situations when you can receive benefits on a current or deceased spouse but there are guidelines. Unless you sat on your ass your whole life anyone can get 4 qtrs. of coverage yearly totaling 40 for your life. If you retired with 38 hours then you get zilch as it should be. You cannot take out what you don't put in . Also, since it is a social program the money helps EVERYONE as it should and has to be. If you start drawing at 62 you will spend all you put into Social Security and Medicare plus more. It is not a huge windfall but it is something.

  • Report this Comment On January 21, 2014, at 7:23 AM, Newby70 wrote:

    Dara- Perhaps this will ad some light to the subject. When he turns 66 he is considered fully retired and NOT disabled by our roles. Basically the amount he will get at 66 will be the same as the amount he would get on disability. It is just paid for out of a different trust fund.

    Now if he was on SSI then at age 62 he must apply for reduced disability as SSI is a needs based program and anyone on it must file for any and all benefits to which they may be entitled.

  • Report this Comment On January 21, 2014, at 7:48 AM, ThinkMn wrote:

    Trap? How about they were trying to scheme to get more and lost. Even so, they still got a fair share. Be happy with what you have. Cut your expenses and enjoy life. You still have plenty.

  • Report this Comment On January 21, 2014, at 8:40 AM, jimmychurch wrote:

    It is not trap. It is like saying you don't get interest if you don't invest. Well, duh!

  • Report this Comment On January 21, 2014, at 9:20 AM, oldmutt1949 wrote:

    How do people in their twenties or early thirties get on S.S. who haven't worked more then years in their entire lives?

    My nephew is one example. He has a drug problem and is collecting S.S. enjoys subsidized housing ( until he got evicted for smashing his fist through wall while having a party ) gets a bridge card, Obama phone, health care all the while continuing to drug his life away.

  • Report this Comment On January 21, 2014, at 10:19 AM, sabebrush6 wrote:

    If you did NOT contribute to the Social Security program, you should NOT receive any money from it. It's a rule that has been in effect for many, many, many years.

    Just because you're here doesn't mean you qualify. You have to earn it. Just like a job vacation. You have to be on the job X amount of time to qualify for the allotted amount of vacation. Period. No worky, no vacation.

    It's called ---- plan ahead.

  • Report this Comment On January 21, 2014, at 10:29 AM, griz104 wrote:

    The thing that gets me are all the Illegals coming into the Country and not having any problems getting right on Social Security..Never worked a freaking day in their life in this Country but can steal Social Security..And then we wonder why it's going broke!! Get them the hell out of the Country!!

  • Report this Comment On January 21, 2014, at 12:00 PM, murphy927 wrote:

    they didn't add that when you retire or apply for disability Soc Sec only counts the last 10 years when figuring benefit amounts. I also totally agree with what griz104 wrote, as my previous neighbors came and "played the system", their game was that all of them worked and paid into Soc Sec just like Americans do only difference is they all paid in on same s.s.# so one would get

    max benefits that supported all of them when they returned to Mexico........and we get to foot the bill one more time.

    When can we send them all home to stay permanently????

  • Report this Comment On January 21, 2014, at 12:51 PM, Hartford12 wrote:

    My spouse was employed by the Postal Service. He retired and received his Civil Service retirement. He passed away and now I receive a monthly annuity. I have 4 years before I can retire. Will my SS be lessened due to the survivor's annuity?

  • Report this Comment On January 21, 2014, at 1:28 PM, SalEsman wrote:

    Hillarious that folks are wondering what happens to their money if they don't get enough points to qualify for SS.

    Ever think about the average black man that will pay in for 40 years on average die by 67, and recieve a pittance in payouts because he on average won't live that long.

    Better question, if he has adult children guess what they don't get that money he paid in either. Ask anyone, the best way to get wealthy is to inherit it, yet black families are continuously shafted by this system. Black men are still driving Ms Daisy even when they are dead.

  • Report this Comment On January 21, 2014, at 5:57 PM, lsrtx436 wrote:

    I worked for 30 years and was forced into medical retirement from my work. I received SSDI from 2001 til 2012. They told me I would get my deceased husbands benefits which would be a lot more. I did as they said when I turned 66 years old I applied for his benefit. I got $25.00 more. He had a great job, made over $40K a year, I made $27K. Someone explain that to me. He paid in almost 2x more than me. I've asked them to re-evaluate our records. But they don't want to do it Suggestions?

  • Report this Comment On January 21, 2014, at 6:20 PM, jammerreese wrote:

    I am getting tired of all problems being blamed on non citizens. The problems is the people in office and the ever changing rules to bring us all to poverty. This system is designed to fail. The idea that a nest egg will be provide going forward is a sham. Programs are being taken away daily and many non citizens are returning to their countries because they can't find work in Obama's America because so many places have shut their doors. All the people that write should take time to voice their opinions to their grossly overpaid politicos that is where the problems really are people in power who only represent the wealth!

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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