Retirement in the USA: Social Security, 401(k) and IRAs

Retirement in the United States rests on three layers: Social Security, a public pension funded by payroll taxes; workplace plans such as the 401(k); and personal savings in accounts such as an IRA. The public pension replaces only part of a working income, so people's living standards in old age depend heavily on what they saved themselves. This page explains how each layer works, gives the current figures, and covers what foreign workers and retirees need to know.

This page provides general information only and does not constitute financial or tax advice. Limits and rates change every year; verify current figures with the SSA and IRS, and consult a qualified adviser about your situation.

Layer 1: Social Security

Social Security is a pay-as-you-go system funded by the payroll tax known as FICA. Employees and employers each pay 6.2% for Social Security on wages up to an annual limit, plus 1.45% each for Medicare with no limit. The self-employed pay both shares. The wage limit is $184,500 for 2026 and $192,300 for 2027. See our tax guide for how this fits with income tax.

Qualifying: 40 Credits

You need 40 credits, or roughly 10 years of covered work, to get a retirement benefit. You can earn up to 4 credits a year, and in 2026 each one takes $1,890 of covered earnings. Credits are recorded under your Social Security number and stay on your record if you leave the US.

When to Claim

If you claim before full retirement age and keep working, part of your benefit is withheld once your earnings pass a limit, which is $24,480 in 2026 and $25,560 in 2027. The amounts withheld are credited back later through a higher benefit.

How Much It Pays

The benefit is based on your 35 highest years of indexed earnings, and years not worked count as zero. The formula is progressive, replacing a greater share of income for lower earners. Benefits rise each year with inflation: the increase for 2027 is 3.6%, which the SSA expects to take the average retired worker's benefit to about $2,170 a month in January 2027.

Is It Running Out?

The system will not disappear, but it has a funding gap. The 2026 Trustees Report projects that the main retirement trust fund will run out of reserves in late 2032. Payroll taxes would then still cover about 78% of scheduled benefits unless Congress acts. Congress has changed the system to close past gaps, but it is prudent to treat the benefit as one part of your plan.

Layer 2: Workplace Plans

A 401(k) is the standard private-sector plan; schools and nonprofits often offer a similar 403(b). You choose a percentage of your pay to go into investment funds. No federal law requires employers to offer a plan, but a growing number of states require employers without one to enroll staff in a state-run savings program. Traditional pensions that pay a fixed monthly amount for life are now rare outside government and some long-established employers, so market risk mostly falls on the worker.

• Employer match: many employers add money when you contribute, for example 50 cents or a dollar for each dollar, up to a share of your salary. Contribute at least enough to get the full match, or you are turning down pay.
• Vesting: your contributions are always yours, but matched money may require you to stay for a set number of years.
• Traditional or Roth: traditional contributions reduce taxable income now, and withdrawals are taxed later. Roth contributions are made after tax, and qualified withdrawals are tax-free.
• Early withdrawals: taking money out before age 59½ usually costs income tax plus a 10% penalty, with some exceptions.

Layer 3: Personal Accounts

An IRA (Individual Retirement Account) is one you open yourself at a bank or brokerage, so it does not depend on an employer. You need earned income to contribute. A traditional IRA can be tax-deductible, depending on your income and whether you have a workplace plan. A Roth IRA offers tax-free qualified withdrawals, but eligibility phases out at higher incomes.

Contribution Limits for 2026

Roth IRA eligibility phases out between $153,000 and $168,000 of modified adjusted gross income for single filers in 2026, and between $242,000 and $252,000 for married couples filing jointly. The IRS sets each year's limits in the fall, and the 2027 figures had not been published as of late October 2026. From 2026, higher earners must generally make 401(k) catch-up contributions on a Roth basis. Withdrawals from traditional accounts must generally start at age 73.

Medicare at 65

Most people join Medicare, the federal health program, at 65. It is separate from Social Security, and there is a seven-month enrollment window around your 65th birthday. Late sign-ups can face lasting penalties. Part A (hospital) is generally premium-free after 40 credits. Part B (doctors) has a monthly premium of $202.90 in 2026; the 2027 figure had not been announced as of late October 2026. Medicare does not cover most long-term care, which is one of the largest risks in a US retirement. See our healthcare guide for more.

If You Are Not American

Working in the US

Work on most visas brings Social Security tax, though some nonresident students and exchange visitors are exempt. The US has about 30 totalization agreements, with countries including Canada, the UK, Germany, France, Japan, South Korea and Australia. They generally stop you from paying into two systems for the same work and can combine periods from both countries to help you qualify. They do not merge the two pensions: each country pays its own share. Check the SSA's list.

Without an agreement and with under 40 credits, you generally get no US retirement benefit and no refund of payroll taxes. A law passed in January 2025 repealed the rules that used to reduce US benefits for many people who also received a foreign or other non-covered pension.

Leaving the US

You can usually leave a 401(k) or IRA invested, and that is often the better choice. Cashing out early can trigger withholding of 30% and the 10% penalty, depending on your residence and any tax treaty. Your home country's treatment of Roth accounts varies. Social Security can generally be paid abroad, but nonresident noncitizens often face tax withholding, and rules differ by nationality.

Retiring to the US

There is no US retirement visa. A visitor visa or ESTA allows only limited stays, and owning property gives no right to live in the country. Long-term retirement here generally needs a green card, often through an adult citizen child. Newcomers without a work history may have to pay for Medicare, and those who qualify typically need 5 years of residence as a green card holder.

Related articles:

• The US Healthcare System
• Social Security Number (SSN)
• US Taxes
• Working in the USA