Social Security
Social Security is a US federal program that provides retirement income, disability benefits, and survivors benefits. Benefits are funded by FICA payroll taxes. The amount you receive in retirement depends on your 35 highest earning years and the age you claim.
Workers earn up to 4 Social Security credits per year. To qualify for retirement benefits, you need 40 credits (10 years of work). Benefits are calculated from your Average Indexed Monthly Earnings (AIME) over your 35 highest-earning years.
You can claim Social Security as early as age 62 (at a permanent reduction of up to 30%) or delay until age 70 (earning 8% more per year after full retirement age — the best guaranteed return on a financial decision you can make). Full retirement age is 67 for anyone born after 1960.
Social Security is not designed to replace your full income — the average monthly benefit in 2025 is about $1,900. It is meant to supplement personal retirement savings. The program projects that trust fund reserves may be depleted by the mid-2030s, potentially reducing benefits to ~80% of scheduled amounts.
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- FICA Taxes
- FICA (Federal Insurance Contributions Act) taxes fund Social Security and Medicare. Employees pay 7.65% of gross wages — 6.2% for Social Security (up to the wage base) and 1.45% for Medicare — and employers match these contributions.
- Traditional IRA
- A traditional IRA (Individual Retirement Account) is a tax-deferred retirement account. Contributions may be tax-deductible (depending on income and whether you have a workplace plan), and withdrawals in retirement are taxed as ordinary income.
- 401(k)
- A 401(k) is a US employer-sponsored retirement savings account. Contributions are pre-tax (traditional) or post-tax (Roth), grow tax-deferred or tax-free, and benefit from compound growth over decades.
- Safe Withdrawal Rate (SWR)
- The safe withdrawal rate is the maximum percentage of a retirement portfolio you can withdraw annually without running out of money over a given time horizon. The 4% rule is the most widely cited guideline.