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  • Writer's pictureChris Stein, CFP®

Quarters vs Credits

To qualify for Social Security benefits you have to accumulate a certain number of credits… or is it quarters? The methods on how to qualify have been ironed out over the years and hence the title of this week’s topic. This post is a bit more directed toward our listeners and readers who are still amassing their Social Security credits or are just looking for a history lesson on Social Security. Those who have taken time off work during their careers, worked in the public sector and did not contribute to Social Security, or stayed at home to raise children may find this post applies directly to them.

So what is a Quarter of Coverage?

A quarter of coverage is actually a rather outdated term.  When the Social Security system was founded, in order to be eligible for a minimal level of Social Security benefits you had to earn 40 Quarters of Coverage. This meant that you had to work for at least forty quarters (ten years) and earn at least $50 each quarter.  Any quarter of the year that you earned $50 or more you earned one Quarter of Coverage.

Well, in 1978 that all changed because the rules were found to be unfair to a certain class of workers. Seasonal workers could earn as much income as any other year-round worker but would not receive as many Quarters of Coverage because during their off seasons they were out of work.

Quarters to Credits: 

So, in 1978 the rules were changed.  Rather than basing eligibility off of quarters worked, now it is based off of dollars earned in a year.  The magic number of forty has not gone away, but now it’s forty “credits” – not “quarters”. (For those who are sticklers for accuracy, legally these credits are still called Quarters of Coverage or QCs, but they are mainly referred to as Social Security Credits.) The maximum number of credits that you can earn in one year is four but you can earn those credits in as little as one day of work and it doesn’t matter what quarter you worked in.

When this rule changed in 1978, you could earn all four of your credits as long as you earned at least $1000 throughout the year.  The way it works is a $250 earnings minimum is set for each credit with a maximum number of credits that you can receive in one year being four.  In 1978, if you earned $250 you received one credit, if you earned $500 you received two credits, and so on until four credits were earned.

Calculating the Minimum Earnings to Receive a Credit:

The $250 minimum is a fixed value but is adjusted annually based off of wage inflation (not price inflation). Of course, the calculation is a little more in-depth than simple multiplication, but in general you can assume it grows by wage inflation.  As of 2017, the minimum has increased to $1300 for one credit.  So, if in the first day, week, or month of 2017 you earn at least $5200 ($1300×4) you have met the minimum requirement to receive your four credits for the year.  Anything else you earn during the year won’t count extra toward eligibility but will count toward how much your Primary Insurance Amount will be!

For more information on this topic, please use the play button below.

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