The U.S. retirement system: Social Security, 401(k) and IRA basics

Retirement provision in the U.S. usually rests on three pillars: 1) public social insurance — Social Security (SSA); 2) an employer-sponsored savings plan — the 401(k); 3) a personal retirement account — the IRA. Below, each is explained with facts, based on the official information of the U.S. Social Security Administration (SSA) and the Internal Revenue Service (IRS). Dollar figures are for 2026 unless stated otherwise.

Qualifying for Social Security

According to the SSA, most people need 40 credits (about 10 years of work) to qualify for retirement benefits. In 2026, you earn 1 credit for each $1,890 of covered earnings; once you earn $7,560 you have all 4 credits for that year. You can earn a maximum of 4 credits per year — so credits accumulate over your working years.

Retirement age: 62, 67 and 70

For people born in 1960 or later, the Full Retirement Age is 67. You may start benefits as early as age 62, but the amount is permanently reduced. Conversely, if you delay claiming past full retirement age, the benefit grows until age 70: for those with a full age of 67, claiming at 70 yields 124% of the full benefit. Benefits do not increase after age 70.

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The FICA tax and the earnings cap

Social Security is funded by the FICA payroll tax: the employee pays 6.2% and the employer pays 6.2% (12.4% total) for Social Security (OASDI), applied up to a taxable earnings cap. In 2026 that cap (the taxable wage base) is $184,500 (up from $176,100 in 2025). For Medicare, a separate 1.45% (from employee and employer each) is levied on all earnings, with no cap.

Rules for immigrants

Lawfully present noncitizens who are authorized to work, have a valid SSN, and meet the credit requirement (generally 40 credits) can qualify for Social Security retirement benefits. Since January 1, 2004, a worker must be legally authorized to work for earnings to count toward benefits. The U.S. has totalization agreements with certain countries that let workers combine (totalize) U.S. and foreign work credits to earn a prorated benefit and avoid dual taxation. The Social Security Fairness Act, signed on January 5, 2025, repealed the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) — raising benefits for some people with foreign or non-covered pensions.

401(k) — the employer plan

A 401(k) is an employer-sponsored savings plan; contributions can be pre-tax or Roth (after-tax), and employers often add a matching contribution. According to the IRS, in 2026 the employee elective-deferral limit is $24,500 (up from $23,500 in 2025). For employees aged 50 and older, the catch-up contribution is $8,000 (up to $32,500 total). Under the SECURE 2.0 law, those aged 60–63 have an enhanced catch-up of $11,250 (up to $35,750 total).

IRA — the personal account

An IRA (individual retirement account) is an account you open yourself, independent of an employer. There are two main types: Traditional (usually pre-tax) and Roth (after-tax). According to the IRS, in 2026 the contribution limit is $7,500 (up from $7,000), plus a $1,100 catch-up for those over 50. Roth IRAs have income limits: in 2026, eligibility phases out between $153,000–$168,000 for single filers and $242,000–$252,000 for married couples filing jointly.

The three pillars together

The overall picture: Social Security is the government-guaranteed base benefit; the 401(k) is employer-based savings, often with a match; the IRA is personal supplementary savings. The three pillars complement one another; the exact figures and rules are updated each year on the official SSA (ssa.gov) and IRS (irs.gov) pages.