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Am I Eligible for Social Security Benefits?

By Matthew Frankel, CFP® - Updated Mar 15, 2018 at 11:56AM

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You'll need to earn 40 Social Security credits to be eligible for benefits, and here's how to determine if you've done that.

Eligibility for Social Security retirement benefits depends on your work record -- specifically, the length of time you worked, and the amount of money you earned. In a nutshell, the requirements to be eligible include a work history of 10 years, and earnings of at least $5,040 per year, indexed for inflation.

Here are the details of Social Security eligibility, and how your benefit is determined if you're eligible.

SS card and currency

Image source: Getty Images.

Eligibility requirements for Social Security retirement benefits

In order to become eligible for Social Security benefits, you'll need to earn enough credits. One Social Security credit is awarded for $1,260 in earnings, as of 2016, an amount that generally changes each year to keep up with inflation.

Forty credits are required for benefit eligibility, but you can only earn a maximum of four credits in any one calendar year. So you can max out your credits by earning $5,040 in 2016, and then it will take at least 10 years of work to earn the 40 credits to become eligible for Social Security.

You only get Social Security credits for income on which you pay Social Security taxes -- which is basically earnings from a job, or from self-employment. Other sources of income, such as dividends and capital gains, don't count for Social Security eligibility.

How your benefit is determined

Unlike many pension plans, Social Security isn't just based on your last few years of earnings. Rather, the Social Security benefit calculation takes your highest 35 years of earnings, indexed for inflation, into account.

The way the process works is that each year's earnings, or the maximum taxable Social Security earnings for the year (whichever is less), is multiplied by an index factor to account for inflation. As one example, any Social Security wages you earned in 1995 are multiplied by a factor of 1.88 in order to compensate for the inflation that's taken place between that year and the present.

Once this is done for every year in which you had earned income, the top 35 years are averaged and divided by 12 to produce your monthly average earnings. If you worked for less than 35 years, your working years will be factored into the calculation, as well as earnings of $0 for the remaining years. For example, if you work for 30 years, there will be five years of zero earnings factored into your average.

Once your monthly average has been determined, it is then applied to a weighted formula in order to determine your benefit. As of 2016, the formula is:

  • 90% of the first $856
  • 32% of the amount between $856 and $5,157
  • 15% of the amount above $5,157

Other Social Security programs have their own eligibility requirements

It's also important to mention that retirement benefits are just one of Social Security's programs, and that the 40-credit requirement doesn't apply to the others.

Disability benefits are a big part of Social Security, and provide income based on your work record if you become disabled and can no longer work. The younger you are, the fewer credits you'll need to qualify. For example, a worker who becomes disabled at age 50 only needs 28 credits to qualify for benefits.

Another Social Security program, known as survivors benefits, can provide income to your spouse, children, and other dependents If you die. The younger you are when you die, the fewer credits you'll need to qualify for survivors benefits, but nobody needs more than 40.

Source: SSA.

In a nutshell, you'll need to earn 40 credits in order to be eligible for retirement benefits, and may be eligible for other Social Security programs with far less than this amount. The best way to see where you stand and check your eligibility is to create an account on www.ssa.gov, and take a look at your latest Social Security statement. As you can see from the sample statement above, you can find your eligibility status, as well as an estimate of what your benefits could be.

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