2022 AFBA Financial Planning Guide

Active duty personnel pay Social Security tax on their basic pay. However, Social Security tax is not withheld from military retired pay. Cost of Living Adjustment (COLA). Benefits are adjusted for inflation on an annual basis using the change in the Consumer Price Index (CPI/W). For 2022 the COLA adjustment is 5.9% which will increase the average benefit by $92 a month. 12–2. SOCIAL SECURITY ELIGIBILITY. As a general rule, the amount of Social Security benefits you will qualify for are based on a combination of your “earnings” and Social Security “credits.” Earnings. Social Security earnings are posted to your account based on a “quarter coverage” system. You earn a quarter of coverage if you are paid at least a specified minimum level of compensation in a calendar quarter. To keep pace with the change in average wages, the quarterly earnings requirement is reviewed annually. For 2022 the quarterly earnings requirement is $1,510. Unfortunately, few people keep track of their Social Security earnings, but it is wise to do so at least every three years. In general, if an error is made in your account, there is a time limit of three years and three months following the close of any taxable year during which the error can be corrected. Paragraph 12–4 provides information on estimating your benefits and determining the status of your earnings record. Credits. To be eligible for Social Security benefits, you must earn Social Security “credits.” One credit is awarded for each qualifying calendar quarter of work — in 2022 a qualifying quarter is one in which you earn at least $1,510 in income subject to Social Security tax. A maximum of four credits can be earned each year and most people need 40 credits or 10 years of work to qualify for Social Security benefits. An individual who has accumulated 40 credits is considered to be “fully insured.” In some cases, an individual may be eligible to receive certain disability and survivor benefits even if they have not accumulated 40 credits. These individuals are considered to be “currently insured” and generally must have accumulated at least six good quarters of credit out of the thirteen quarter period preceding their application for benefits. Obviously most people work longer than ten years and accumulate many extra credits. These extra credits do not increase your eventual Social Security benefit. However, the income you earn does help to increase your benefit.

Under certain circumstances, special extra earnings for military service from 1957 through 2001 can be credited to your record for Social Security purposes. These extra earnings credits may help you qualify for Social Security or increase the amount of your Social Security benefit. Special extra earnings credits are granted for periods of active duty or active duty for training. Special extra earnings credits are not granted for inactive duty training. If your active military service occurred: a. Between 1957–1977. You are credited $300 in extra earnings for each calendar quarter in which you received active duty basic pay. b. Between 1978–2001. You are credited an additional $100 in earnings, up to a maximum of $1,200 per year, for every $300 in active duty basic pay. c. After 2001. There are no special extra earnings credits for military service. 12–3. APPLYING FOR SOCIAL SECURITY. It is important to remember that benefit payments under the Social Security program do not automatically start when you become eligible to receive them. All benefits must be applied for by the person entitled to the benefit if he or she is at least 18 years of age, is mentally competent, and is physically capable of completing the benefit claim forms. You can start your retirement benefits as early as age 62 or as late as age 70. You should apply for benefits four months before the date you want your benefits to start. The easiest way to apply for Social Security is online at www.ssa.gov . In most cases, once your application is submitted electronically, you are done. There are no forms to sign and usually no documentation is required. The Social Security Administration will process your application and contact you if any further information is needed. You can also apply by calling 1–800–772–1213 or in person at your local Social Security office. 12–4. ESTIMATING SOCIAL SECURITY BENEFITS. Benefits are determined by your yearly earnings over 35 years. These earnings are adjusted for inflation and averaged into a monthly amount which is then used as the basis for computing the entitlement. Benefit amounts are adjusted annually based on changes in the Consumer Price Index. For individuals retiring at full retirement age (FRA), the maximum Social Security benefit in 2022 is $3,345 a month. This could become even higher if workers entitled to the maximum decide to wait longer to claim.


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