Life Care Planning: What you should know about Social Security benefits

By Sandra W. Reed

Social Security Payoff: Only If Retiree Paid Into the System

Misconceptions about the Social Security Retirement system have prompted heated rhetoric recently. Payments to retirees have been called “handouts.” Those receiving Social Security paychecks have been labeled “takers.”

In particular, critics accuse Baby Boomers of robbing their children and grandchildren through accessing a program that will not be there for future generations. Some predict a War Between the Ages. (Would Gen Xers and younger call it the War of Elderly Aggression?)

Benefits Not A Handout; Recipients Not Takers

My view about the raised concerns:  (1) Social Security benefits are not a handout and those accepting them are not takers because those receiving benefits are workers who have paid into the system sufficient amounts to be insured; and (2) Facts demonstrate that the Social Security retirement fund system is solvent now and will remain so, without modification, for more than 20 years hence.  Congress, despite recent stalemates, will enact those changes, if any, that become necessary to secure future SS solvency.

The issues raised above are not the worry.  What should concern each worker is whether he or she meets the qualifications for benefits at the time of retirement. No one wants to face the the bitter truth that they are not insured and, therefore, will not be getting monthly SS retirement checks.

40 Quarters of Coverage Required For SS Retirement Income 

A worker must have paid into the system and have accumulated 40 quarters of coverage known as Qualified Credits (QC) between the ages of 21 and 62 to be insured under the Social Security program.  These QCs do not have to be earned consecutively, but a minimum amount must be earned to obtain each quarter of coverage.  And, no matter how much money a worker makes, no more than four quarters of coverage are awarded in any given year.

Minimum Amounts Earned Per Quarter to Qualify for QC

Prior to 1978, SS awarded a QC for each quarter a worker was paid $50 in wages or 4 quarters for each year in which a worker earned $400 or more self-employment income.   In 1978, $250 earned in a quarter qualified as a QC, up to four quarters.

After 1978, employers generally report wages on an annual, rather than a quarterly basis, with the amount needed for a QC equal to $250 multiplied by a ratio of a scale known as the national average wage index. The amount is rounded to the nearest multiple of $10.  The amount a person must earn for 2013 is $1,160 per quarter.

Individuals concerned as to whether they have met the earnings requirement for any given year may consult a chart which lists the quarterly amount for each year from 1978 to 2013 at , the official Social Security Administration website.

Numerous scenarios which lead to an individual’s having fewer QCs than necessary to obtain insured status with Social Security.  Several examples follow.

Example 1:  Jobber Joe worked for a company that assured him they were paying the employment tax on his behalf to the government.  He discovers on his 55th birthday that the company had not done so for five years.  As a jobber, he was not consistently employed throughout his work life.  As a result, now Joe is faced with being 20 QCs short of the 40 he needs to be insured.

Example 2: Entrepreneur Eddie started a construction business the year he graduated from high school and faithfully paid contributions to Social Security. Ten years later, during a boom in both the housing and stock markets, he made so much money building homes and in investments, he took off for three years to travel the world and accumulated no QCs during that period.

Example 3:  Doting Dotty worked for a large accounting firm after passing the CPA exam. When her father died, her mother needed full-time care but could not afford 24/7 caregivers and refused assisted living. Dotty moved back home, investing all of her time in her mother’s care for six years. In January 2013, at the age of 60, Dotty discovered she was lacking eight CQs to qualify for benefits. Dotty’s mother’s health prevents Dotty’s seeking outside employment.

Can Joe, Eddie and Dotty remedy their situations?  Yes. They can go back to work, make the quarterly minimums and pay into the system all monies required. But time is of the essence for Joe and Dotty. Eddie is younger with fewer missing quarters and more years in which to make them up; but even he would be wise to start soon, not knowing what his own future holds.

Joe lacks 20 QCs, so he must work five years before the year he turns 62. We know Joe is 55. Let’s assume his birthday is early June. Given there are only 26 quarters before the year he turns 62, he should immediately seek work allowing him to pay the minimum amounts per quarter. If he gets a job in July after that 55th birthday, earns two QCs that year and four QCs per year thereafter, he reaches his goal in June the year he turns 60.

Dotty has the thorniest problem for two reasons: (1) she has two years to make up, with only one year ahead, before the year she turns 62; and (2) she can’t leave her mother for work outside the home. Fortunately, even she has a solution.

Dotty’s mother can contract to pay her a monthly amount equal to or exceeding the minimum for earning a QC. Dotty’s mother pays Dotty this amount retroactively for the year 2012 and going forward at least through 2013. Dotty files an income tax return for 2012, pays in the self-employment tax for the year and repeats the process for the year 2013. In this manner, she earns the missing eight quarters to meet insured status for SS benefits before her time runs out.

Sandra W. Reed is an attorney, of counsel with Katten & Benson, an Elder Law firm.  Contact her at 254.797.0211 or at if you have questions, or wish to request a topic for the Life Care Planning column. 

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