Planning for your retirement is a lifelong endeavour that can sometimes feel a bit daunting, however, having a good understanding of how the Social Security program works and what requirements you will need to meet in order to claim benefits can ease some of that anxiety.
The Social Security program is essentially an insurance program in the sense that what you put in during your working career is what you will get out during your retirement. Much like any other program, there is some fine print worth keeping track off as you work your way towards retirement.
If you plan to claim benefits from the Social Security Administration (SSA) once you retire, you will need to contribute a portion of your earnings towards the dedicated Social Security payroll tax throughout your working career. By doing so, you will earn work credits and in order to become eligible for Social Security benefits, you will need a minimum of forty work credits.
The recent October 24th announcement from the SSA revealed the next Cost of Living Adjustment which will bring a 2.8% increase to all benefits in the new year. Alongside this, a number of other limits and requirements are slated to increase in 2026, including the value of one work credit. Here is what you need to know.
How does the Social Security program work?
Throughout your working career, you will contribute 6.2% of your earnings into the dedicated Social Security payroll tax. Your employer will match this contribution thereby making your total contribution 12.4%. Self-employed individuals will typically contribute the full 12.4% themselves. By making this monthly contribution, you will earn work credits, which will later allow you to claim benefits from the SSA once you retire.
Benefits can be claimed from age 62, however, this is considered as claiming early. If you claim benefits early, you will lock yourself into a reduced benefit of up to 30%. The exact percentage by which your benefits will be reduced is determined in relation to the number of months between your current age and your full retirement age.
The full retirement age is currently 66-67, depending on your year of birth. If you claim at full retirement age, you will be eligible for 100% of your benefit. Alternatively, if you delay your retirement, you will receive an 8% increase to your benefits for every year you delay claiming until you are 70 years of age.
This means that if you only begin claiming at age 70, you could be entitled to 124% of the benefit you would have received had you claimed at full retirement age. Delaying your claim may not be feasible for everyone, but it is worth knowing such an option is available.
Work credit value slated to increase
In order to become eligible for Social Security benefits upon retirement, you will need to have earned a minimum of 40 work credits. As noted above, these are earned by paying into the Social Security payroll tax. A maximum of four work credits can be earned each year, and in 2025, the value of one work credit equates to $1,810.
In 2026, however, the value of one work credit will be increasing to $1,890, meaning that workers will have to earn a little bit more before they are able to qualify for Social Security. In order to earn the maximum four work credits in 2026, a worker will need to earn at least $7,560. The increased value of one work credit will largely impact part-time workers more so than full-time workers. Regardless of this, it is still worthwhile to keep an eye on the value of a work credit as it can change from year to year.
The SSA also notes that, ”during your lifetime, you might earn more credits than the minimum number you need to be eligible for benefits. These extra credits do not increase your benefit amount. The average of your earnings over your working years, not the total number of credits you earn, determines how much your monthly payment will be when you receive benefits.”