Why only 40 quarters/credits for Social Security benefits?

[joeea]

I understand that one needs 40 "credits" to qualify for claiming Social Security benefits on your own record.

Anyone familiar enough with the history of Social Security to know why it was set to only 40? What is the thinking behind that number?

Has anyone proposed that the government raise the number of credits/quarters required? I know it wouldn't be a popular Early Requirement change, but I guess I'm surprised that I haven't heard it proposed elsewhere.

 

[NW-Bound]

Oh boy! All of the guilty party have died off long ago. Now, people will just say "just because".

There are all kinds of arbitrary clauses in SS, many making no sense to me.

"Why ask why? Try Bud Dry."

 

[samclem]

I don't know the original thinking behind it, and it seems to me that it hardly matters.


IMO, "early vesting" improves the fairness of retirement systems. If a person contributed to a system (even if just for a year or two), why should they get nothing back? SS already adjusts the amount that is paid out to a recipient based on average contributions over a much longer period (highest 35 years), which (IMO) seems to be a good way to compute things. A person who works just 40 quarters (10 years), will then have 25 additional years of "zero" earnings averaged in when computing their retirement benefit: They won't get much of a check. This seems, to me, to be an adequate measure to prevent someone from "gaming" the system.

 

[ivinsfan]

Remember it also has a survivors benefit built into it for young children and parents who might suffer the loss of a breadwinner..10 years seems fine as a place to "vest" people. Should someone you has worked 9 years leaving young children behind get nothing back in return for their contributions?

 

[braumeister]

Some folks got it with even fewer quarters:

Ida May Fuller was the first beneficiary of recurring monthly Social Security payments. Miss Fuller (known as Aunt Ida to her friends and family) was born on September 6, 1874 …

Miss Fuller filed her retirement claim on November 4, 1939, having worked under Social Security for a little short of three years. While running an errand she dropped by the Rutland Social Security office to ask about possible benefits. She would later observe: "It wasn't that I expected anything, mind you, but I knew I'd been paying for something called Social Security and I wanted to ask the people in Rutland about it."

… the first Social Security check, check number 00-000-001, was issued to Ida May Fuller in the amount of $22.54 and dated January 31, 1940.

https://www.ssa.gov/history/imf.html

During her lifetime she collected a total of $22,888.92 in Social Security benefits.

 

[joeea]

Remember it also has a survivors benefit built into it for young children and parents who might suffer the loss of a breadwinner..10 years seems fine as a place to "vest" people. Should someone you has worked 9 years leaving young children behind get nothing back in return for their contributions?

Survivors benefits are already handled differently than own benefits. Families of deceased younger workers are not subject to the same 40 credit rules.

 

[MRG]

I don't know the original thinking behind it, and it seems to me that it hardly matters.


IMO, "early vesting" improves the fairness of retirement systems. If a person contributed to a system (even if just for a year or two), why should they get nothing back? SS already adjusts the amount that is paid out to a recipient based on average contributions over a much longer period (highest 35 years), which seems a good way to compute things. A person who works just 40 quarters (10 years), will then have 25 additional years of "zero" earnings averaged in when computing their retirement benefit: They won't get much of a check. This seems, to me, to be an adequate measure to prevent someone from "gaming" the system.

+1

They drew straws and adjusted for reality. You know they had to have a number, if not 40 maybe 99[emoji12] ? It seems as fair as it can be. Much like many other magic numbers in life it's as good as it could be.

Remember Y2K? A lot of us were asking why did they limit all this crap? Did you know it only takes the low order 6 bits to represent all the characters you can enter on a standard 3270 terminal. There's no reason to save all of them, cause we can just invoke code to put the other bits back. [emoji23] WTF!

Just cause 40 is a great number. Or given the demographics of the workplace in 1935 ten years seemed to weed out much of the population. Keep in mind many women didn't work outside the home in those days. Most who did were single. I do remember my DM telling me her employment ended the day she was married in 1939.

 

[joeea]

I don't know the original thinking behind it, and it seems to me that it hardly matters.

It might matter a lot to some if they raised the minimum from 40 to 80 or even 120 "credits".

 

[MichaelB]

It might matter a lot to some if they raised the minimum from 40 to 80 or even 120 "credits".

Of course, by increasing the vesting requirement, the total payouts will decline. That's math. Are you suggesting that someone working and paying into SS for 25 years should not be eligible for benefits? That's pretty harsh. Even private pension plans vest after 5-10 years.

 

[samclem]

It might matter a lot to some if they raised the minimum from 40 to 80 or even 120 "credits."

Can you explain how the original rationale matters at all today?

Let's just go with what we have now. It seems that you are anticipating that there may be an effort to reduce SS benefits. In what way(s) would increasing the present 40 quarter vesting be an improvement over other approaches? In answer to your original question, I think we don't hear about the idea of increasing the 40 quarter vesting requirement because it offers no significant advantages over other proposals that would also decrease benefits, but in a more measured and "smooth" fashion. Discontinuities (aka "cliffs) in benefit programs tend to reduce fairness and encourage behaviors that could be viewed as "gaming" the system.

 

[MI-Roger]

Of course, by increasing the vesting requirement, the total payouts will decline. That's math. Are you suggesting that someone working and paying into SS for 25 years should not be eligible for benefits? That's pretty harsh. Even private pension plans vest after 5-10 years.

Great point! Pensions used to require 10 years for vesting. I can remember when it was dropped to 5 years. Perhaps 40 quarters was selected to match the 10 year vesting law, or vice versa.

 

[joeea]

Of course, by increasing the vesting requirement, the total payouts will decline. That's math. Are you suggesting that someone working and paying into SS for 25 years should not be eligible for benefits? That's pretty harsh. Even private pension plans vest after 5-10 years.

No, I'm not suggesting that.

I'm wondering if some politician will decide that all those wealth folks retiring early don't really need any benefits and choose to use this method to do something about it.

I'm trying to understand the rationale behind the magic number "40" to determine if that number makes sense these days, or if some other number might be a lower limit. Maybe 120. Maybe 0.

 

[joeea]

Can you explain how the original rationale matters at all today?

Let's just go with what we have now.

I guess that could be the answer for any proposed changes to the Social Security program. Yet, I doubt that will fly.

It seems that you are anticipating that there may be an effort to reduce SS benefits.

Yes, I certainly am anticipating those efforts.

In what way(s) would increasing the present 40 quarter vesting be an improvement over other approaches?

I'm not sure "improvement" is the right word. All changes will have pros and cons. All changes will favor some and hurt others.

This change would hurt those who put in fewer years of work and are not eligible to claim on someone else's benefits.

In answer to your original question, I think we don't hear about the idea of increasing the 40 quarter vesting requirement because it offers no significant advantages over other proposals that would also decrease benefits, but in a more measured and "smooth" fashion. Discontinuities (aka "cliffs) in benefit programs tend to reduce fairness and encourage behaviors that could be viewed as "gaming" the system.

How would one game the system if the number of credits were increased?

 

[Chuckanut]

It's the 'social' part of Social Security. It's not an investment or an annuity, though many often think of it in that way.

It's a social program to take care of older people. IMHO, since some contribution is required by nearly all who get benefits (or a spouse or parent), it's far better than a program that requires no contributions over the years from able-bodied adults. Not perfect, but better.

 

[MichaelB]

No, I'm not suggesting that.

I'm wondering if some politician will decide that all those wealth folks retiring early don't really need any benefits and choose to use this method to do something about it.

Politicians are imaginative, so a few probably have this mired deep in the muck of their grey matter.

I'm trying to understand the rationale behind the magic number "40" to determine if that number makes sense these days, or if some other number might be a lower limit.

Probably nothing special. Pension funds need to comply with certain standards, including vesting. It protects both parties. The pension benefit of SS was probably crafted on a similar theory.

 

[samclem]

How would one game the system if the number of credits were increased?

Any binary "cliff" (as opposed to a relatively smooth curve, like we already have in the SS benefit formula) encourages all kinds of tricks/maneuvers/"optimization strategies." This happens whenever the marginal "cost" of meeting the requirement is less than the marginal "gain."

For example, if the new vesting requirement is 120 quarters, a person with just 118 quarters will be very motivated to find a way to report 2 more quarters of work. I can see where a retired doctor might get a job at Walmart to meet the requirement. Or, more likely, he might become "self employed" for 6 months, making a suspiciously small amount of cash income from a (fictional) side business just to pay the self-employment taxes and get that lifetime SS check. On a more structured level, entire businesses might spring up to help people get a few months worth of SS credits, even if the work was basically non-productive and the "income" was derived from difficult-to-document contributions from the employees (purchases of supplies, etc).

A quick look at the lengths to which people go to "optimize" the ACA subsidies will shed light on how this might go.
If we want to reduce SS payouts, it will be more rational to take the many other steps that are more frequently considered rather than increase the 40 quarter vesting hurdle. Heck, just increasing the income period used to compute benefits from 35 years to 40 years would probably reduce payouts more, and the relatively smooth reduction in benefits would not encourage "gaming" to an appreciable degree.

 

[REWahoo]

FWIW, I found the table below in a history of SS regarding the amendment of 1950. I didn't spend enough time with the history to locate any explanation of the table, but it appears the 40 quarter requirement for full SS coverage may have started initially as 6 quarters and increased to 40 by adding two quarters per year beginning in 1955 and reaching 40 quarters in 1971.

Not sure if the 6 quarter requirement was part of the initial SS Act in 1935 or was something new added as part of this amendment.

Edit: In addition to the link to the 1950 Amendment history above, here are two other links to SS history for your reading pleasure:

The Social Security Act of 1935
Fifty Years of Social Security

 

[Aerides]

Most people who "only" vest 40 (vs. say 80 or 120) quarters fall into one of the following categories:

• Immigrants who came to this country after the start of their working lives
• Women (occasionally men) who left the workforce early (or returned late) due to raising a family
• People who left the workforce early to become a home caregiver of an elderly sick parent, or child with special needs
• People who left early due to no longer being physically able to work, but didn't meet SSI-disability requirements
• Entrepreneurs who left traditional employment to start their own businesses - including those that failed thus never yielding income from which to pay SS
  

The "i left early because I could to RE" is arguably a smaller number than any group of the above.

40q's is probably a stake-in-the-ground number, and raising it would piss off all of those groups of voters, and many others I'm not even thinking of.

 

[joeea]

Any binary "cliff" (as opposed to a relatively smooth curve, like we already have in the SS benefit formula) encourages all kinds of tricks/maneuvers/"optimization strategies." This happens whenever the marginal "cost" of meeting the requirement is less than the marginal "gain."

For example, if the new vesting requirement is 120 quarters, a person with just 118 quarters will be very motivated to find a way to report 2 more quarters of work. I can see where a retired doctor might get a job at Walmart to meet the requirement.

So working longer is gaming the system?
I guess I could imagine some politicians thinking that might be a good thing.

 

[gwraigty]

It might matter a lot to some if they raised the minimum from 40 to 80 or even 120 "credits".

But...but...but...

Then we wouldn't be able to enjoy all the topics started by people asking if they can retire at 45 or earlier. You monster!!!!!!!!!!!

 

[Katsmeow]

The thing about quarters is that it also applies to disability income. For some people with disabilities it can be difficult to earn enough quarters to be able to obtain disability as someone who worked versus someone who didn't work (which is means tested and is a very, very small amount). Of course, someone who has the minimum number of quarters won't get as much disability income as someone who worked many years and then became disabled.

Anyway -- sometimes people only earn 40 quarters (or less for younger people) because they are disabled or become disabled.

 

[joeea]

But...but...but...

Then we wouldn't be able to enjoy all the topics started by people asking if they can retire at 45 or earlier. You monster!!!!!!!!!!!

I assume all those folks aren't expecting or depending on Social Security anyway.

 

[joeea]

The thing about quarters is that it also applies to disability income. For some people with disabilities it can be difficult to earn enough quarters to be able to obtain disability as someone who worked versus someone who didn't work (which is means tested and is a very, very small amount). Of course, someone who has the minimum number of quarters won't get as much disability income as someone who worked many years and then became disabled.

Anyway -- sometimes people only earn 40 quarters (or less for younger people) because they are disabled or become disabled.

It's a bit more complicated than just 40 quarters:
https://www.specialneedsalliance.or...s-for-social-security-disability-insurance-2/

And besides, there's no reason disability quarters/credits requirements have to be at all related to retirement quarters/credits. The government could change that in a flash if they wished.