What do you really know about how Social Security works? Many of us have a general idea that when we get older it will provide us with (some) income but we really don’t know much about the system or how the benefits are calculated. The Motley Fool offers “5 Social Security Rules You Should Know by Heart” to give you a tutorial on the basics.
Did you know that you have to earn a certain amount of work credits to get Social Security? You may have been thinking that one could get retirement benefits after working for a certain number of years but there is a credit system in place.
Eligibility for retirement benefits requires that you earn 40 work credits under the Social Security system. You can earn up to four credits per year, and for 2016, you’ll get one credit for every $1,260 in earnings.
The credit system applies only to retirement benefits. Receiving Social Security disability benefits depends on the age you were when you became disabled.
Did you know that Social Security is based on your highest-earning years? To be specific, they look at the 35 years you earned the most after making allowances for inflation. As The Motley Fool observes, if you work longer at a high-paying job later in your career this will benefit you because this will give you more years with high earnings and perhaps cancel out years when your wages were low.
After sharing the basics about how Social Security works, The Motley Fool cautions, “Understanding Social Security is hard, but even worse is the fact that once you think you have a rule down cold, it can change.”
You definitely want to educate yourself about how Social Security works but you have to be aware that the rules may change. This is a good reason to work with a Fee-Only Financial planner who can help you make wise decisions based on the current rules and help you navigate any changes.