If you are approaching retirement, you don't have to choose between a private pension and Social Security retirement benefits. Your Social Security benefit depends on the length of time you have worked and the amount you've earned over your lifetime. Social Security does enforce special rules for certain employees who have not paid in to the system and have benefited from alternative pension systems.
In order to draw your full Social Security benefit, you must apply for the benefits at your full retirement age. This age depends on the year of your birth; if you were born between 1943 and 1954, full retirement age begins on your 66th birthday. The age rises for retirees born later, up to age 67 for those born in 1960 or later. If you retire early, you will not earn the full retirement benefit you would be eligible for at full retirement age, and this reduced benefit will continue for the rest of your life.
You must also have at least 40 credits or quarters of Social Security payroll tax payments, with a credit earned in 2011 for each $1,120 of wages. Essentially, this means that you must work at least 10 years to earn your full retirement benefit. Social Security applies a complicated formula to determine the exact amount, which depends on the amount of money you've earned over your work history, adjusted for inflation.
Drawing a company pension does not affect your Social Security retirement. In fact, most financial experts advise that you plan on at least one alternative source of income, as the Social Security you will earn won't go far as basic living expenses continue to rise. This second income can come from a company pension, an individual retirement account, a part-time job or a savings account.
By the Windfall Elimination Provision, Social Security reduces retirement benefits when workers do not contribute payroll taxes, and instead are covered by a separate retirement system. The most common example would be a federal employee who enrolls in a pension administered by the Civil Service Retirement System, or CSRS. The provision applies if you reached the age of 62 after 1985 or became disabled after 1985, and you became eligible for a pension after that year while not paying Social Security payroll taxes. For workers affected by this rule, Social Security applies a different formula that results in a lower monthly benefit.
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