Social Security and Retirement Planning Legal FAQs

The Social Security Administration provides several different types of benefits, including retirement benefits, disability benefits, and benefits for dependents and survivors of eligible workers. While the requirements vary depending on the type of benefits, a worker must have earned a sufficient number of Social Security work credits to be eligible. This generally means that they worked in covered employment for at least 10 years before claiming retirement benefits or disability benefits (or dying, in the case of survivor benefits). Social Security retirement benefits are limited to people who are at least 62 years old.

You can start collecting retirement benefits when you turn 62, although full retirement age is not until 66 or 67, depending on when you were born. If you were born in 1960 or later, your full retirement age will be 67. (Medicare benefits are available once you turn 65 and are not affected by the rules for full retirement age.)

Your benefits are calculated according to your income throughout your career. Social Security uses the average of your annual earnings. If you claim your retirement benefits before your full retirement age, you will receive a lesser amount than if you waited. If you claim your retirement benefits after your full retirement age, you will receive more benefits than if you claimed them at your full retirement age. The amount increases for each year that you wait to claim benefits until you turn 70.

No, you cannot collect multiple types of Social Security benefits at the same time, even if you are eligible for multiple types. You will collect the type that provides you with the greatest amount of benefits. However, you can change from one type of benefits to another type. When both spouses are eligible for benefits, for example, a spouse might want to change from spousal benefits to their own retirement benefits in some situations. Or they might want to change from retirement benefits or spousal benefits to survivor benefits if their spouse dies.

Yes, although this may reduce your benefits if you have not reached your full retirement age. Social Security applies an earnings limit and will reduce your benefits by one dollar for every two dollars that you earn over the limit from your work. Investment income, pensions, and other types of income sources outside your work are not counted toward the earnings limit. During the year in which you reach full retirement age, Social Security will reduce your benefits by one dollar for every three dollars that you earn over a monthly limit. Once you reach full retirement age, you can earn any amount of income without having your benefits reduced.

You may be able to get spousal benefits after a divorce, as long as you do not marry someone else. Your former marriage would need to have lasted for at least 10 years, and you would need to have been divorced for at least two years. Both ex-spouses would need to have reached the age of 62. If you have multiple ex-spouses, each of whom meets these criteria, you can choose which ex-spouse will serve as the basis of your spousal benefits.

A qualified retirement plan is any type of plan covered in Section 401 of the Tax Code. Common examples are 401(k) plans and defined benefit plans. An employer generally needs to provide these plans, rather than an employee establishing the plan on their own. Employees are taxed on withdrawals but not contributions, although the opposite rules apply to Roth retirement plans.

An employee generally can establish an IRA as part of their investment strategy without relying on their employer to establish it for them. This means that it is not a “qualified plan” (see above). There are certain types of IRAs that do need to be established by the employer, such as SEP IRAs and SIMPLE IRAs. You can find out more about the rules governing IRAs by exploring Section 408 of the Tax Code.

A 401(k) allows you to withhold money from your paycheck to contribute to the plan. It reduces your tax obligation while helping you save for retirement. (You will be taxed when you take money out of the plan.) A 401(k) may allow an employee to control the amount of money that is withheld and change the amount as needed. They may be able to determine their own investment strategy in some cases. If you are an employer, you may find a 401(k) appealing because it imposes fewer costs.

This term simply refers to retirement plans for self-employed people, which have different requirements and restrictions from plans for employees. Contribution limits may be lower in these plans. Some plans may impose substantial administrative costs.

A retirement plan that is vested allows an employee to take the contents of the plan with them when they leave the employer. Sometimes a plan is partly vested, and the amount vested is defined as a certain percentage. You can take this percentage of the plan with you if you leave your employer. However, an employee can take all of the salary that they contribute to a 401(k) plan, regardless of when they leave. They may or may not be able to take employer contributions with them.

Yes, but complicated rules and limits may apply. You can have separate plans for separate employers, including when one employer is your own business. The limits on contributions are evaluated separately in most cases, although sometimes an overall limit will apply if both your employer and you set up a 401(k) plan, a 403(b) plan, a SIMPLE IRA, or certain other types of plans. Any overall limit will depend on the type of plan that you choose.

Under the Employee Retirement Income Security Act of 1974 (ERISA), you generally can protect the contents of a retirement plan provided through your employer. These plans also are exempt from collections efforts during bankruptcy. IRAs and retirement plans for self-employed individuals are not covered by ERISA. You can consult your state law to determine whether it may impose restrictions on collecting from these types of plans during or outside bankruptcy.