How Much Do Military Credits Increase Social Security Benefits?

By: Ryan Cockerham | Reviewed by: Ashley Donohoe, MBA | Updated March 31, 2019

Individuals who have served in any branch of the U.S. military are eligible for a variety of special "credits" which they can use to secure their Social Security benefits. Although military service members are responsible for paying Social Security taxes just like civilians, they are also eligible for a variety of benefits that are offered as part of a military retirement package.

Due to the fact that policies surrounding Social Security and military retirement alike have evolved significantly over the past several decades, the credit system has been created in order to ensure that military members have a clear and transparent method for accruing and calculating the value of their financial support when they reach retirement age. Although the credits earned as part of military service are not used to directly impact monthly Social Security checks, they raise lifetime earnings figures which, in turn, can expand the size of your recurring benefit payments.

Tip

Although the military credit system used to supplement service member's Social Security funds has now been discontinued, it offered helpful assistance to many. The specific value of a credit depended upon the period of time in which the individual served in the military.

The History of Military Retirement and Social Security

The concept of credits was originally devised as a means to ensure that military service members who served in World War II would be able to include their years of duty into the calculations for their Social Security retirement package. This is primarily due to the fact that US military members at this time were not paying into the Social Security system and thus were not eligible to receive benefits for these years of their active service.

Over the next several decades, legislation was enacted to ensure that service members in both active and inactive duty received Social Security credit for their work. As the policies changed over time, the specific value of a "credit" received for military service changed in order to accommodate a growing pool of eligible applicants.

The Basics of Military Service and Social Security

According to federal guidelines, individuals who have completed military service may be eligible to receive credits that correspond to the length of time they spent in the armed forces. These credits provided a specific dollar amount of additional income to the individual's lifetime earnings. For example, individuals who were serving in the military between the years of 1978 and 2001 received a $100 Social Security credit for every $300 of income they received as part of their military salary, with a maximum cap of $1,200 in credits per year.

The specific value of the credit issued depended primarily on the period of time in which the individual served. Veterans who served between the years of 1957 and 1977, for example, received an additional credit of $300 for every quarter-year that they received activity duty pay. With that in mind, veterans may have served in overlapping periods of credit evaluation, meaning that their time as a service member generated multiple forms of credits.

Evaluating the Credit System Today

Beginning in 2001, the policy of distributing credits for military service ended. This is due to the fact that military service members began receiving full Social Security benefits and no longer required issued credits to make up for lost income.

While the credit system was still in effect, individuals who qualified for these credits as part of their military service were not required to complete any special application process in order to ensure that they receive the income due to them. The credits were automatically incorporated into total lifetime earnings, which was then used to compute the monthly benefits delivered to each individual.

Extra Social Security Benefits for Veterans

As mentioned previously, military service members are not entirely reliant on Social Security to fund their retirement. In fact, they are eligible to receive both Social Security payments as well as the standard military retirement pension program.

The current military retirement program overseen by the federal government is classified as a "defined benefit" plan. This means that individuals have a thorough understanding of the specific amount of benefits that will be paid to them based upon their years of service. That being said, there are currently talks to change the military retirement program in order to accommodate the changing nature of military service.

According to recent studies, less than 20 percent of all service members remain in the military for the 20 years that is required to receive 100 percent of available retirement benefits. Because of this, new policies have been proposed that will incorporate not only a defined benefit plan but also a defined contribution system which routes contributions directly to a Thrift Savings Plan. Within the defined contribution plan, the federal government would contribute the equivalent of 1 percent of current base pay into the Thrift Savings Plan. After two years of service, the military would offer a matching contribution up to 5 percent made by individuals towards their TSP.

As part of an incentive to serve for longer periods of time, the military has proposed a Continuation Pay system. Within this framework, a service member would receive the equivalent of 2.5 months of their pay as a bonus when they agree to extend their tenure in the armed forces from 12 to 16 years.

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About the Author

Ryan Cockerham is a nationally recognized author specializing in all things business and finance. His work has served the business, nonprofit and political community. Ryan's work has been featured on PocketSense, Zacks Investment Research, SFGate Home Guides, Bloomberg, HuffPost and more.

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