What you need to know about retirement in the US
Pension in the United States is a very important topic, it is an integral part of everyone's life in America. This is a popular topic on television, in books and magazines, and it is not an easy task to tell about everything in one article, writes Andrey Boychuk in an article for Immigrant Porada.
First of all, you need to understand the types of pensions. As far as I know, there are two of them: public funds and private ones. You are given a state pension in accordance with how much you earned, but you can only use a private fund if you have opened and saved money for an IRA or 401k.
How much do you need?
First of all, I want to say that it is very difficult to live on a state pension. You will actually be poor, so do not rely only on the state. If you are reading this and before that you were only hoping for a state pension, then this paragraph should be for you wake up call - such a kind of alarm clock.
The myth of the state pension
There are many myths that when we retire, this money will be gone. Why do I think this is a myth? Because now people pay taxes, so in 70 years they will do it, and due to taxes there will be a pension fund. I want to note that this is my subjective opinion.
When can I get a pension
Today you can receive a pension from 62 years. But the later you decide to receive it, the more money you will receive each month. For example, if you start receiving pension payments from 70 years, you will receive 100%, and if from 62 years, then 70% of each payment.
If you are interested in this topic, go to this link, click on your year, and then when you go to the next page, you will see how much interest you will receive in 62 and beyond.
For example, I was born in 1987 year, so I chose the string "1960 and later."
. As you can see, in 62, I can only get 70% of the total amount of my pension. Therefore, if there is an opportunity, then it is better to wait until 70 years.
Is it better to work for cash or show income on W2?
Frankly, I do not have a definite answer, but here you can use the power of mathematics. Consider an example. Take my age (29) and assume that I have two options: earn $ 60,000 on W2 (that is, officially pay taxes) and earn $ 60,000 in cash. Suppose annual inflation is three percent per year. I will omit income tax to simplify this example.
|Annual tax||$ 8,076 (tax bracket 15% (13.46% percentage of profit)||$ 1508 (you will show to the IRS that you earn the minimum salary per year 15,080, so the tax will be 10%)|
|Annual profit after tax payment||$ 51,924||$ 58,492 ($ 6505 difference between cash and W2). Assume that you will save this money yourself for your retirement.|
|Monthly pension if left in 62 of the year||$ 1470||$ 631 ($ 839 per year less)|
|The total amount for 16 years of retirement (on average, people in the US live up to 78 years according to Google statistics)||$ 282240||$ 121152 from the state|
|Extra money||$0||$ 971,212 (this is the amount you have set aside for retirement for 33 years (from 29 years), given inflation.|
Recalculate the monthly pension, if you consider that you will retire in 62 of the year and will receive it until 78 years.
|$ 1470||$ 5689|
So, it turns out that working for cash and showing the minimum wage is more profitable, but the question is whether you are so disciplined to save that money for retirement, and what are the chances that you will not spend that money if something happens. That is, money is big, but there is little chance that you will stick to this strategy.
On the other hand, with W2, it turns out that you will receive almost 4 times less, and they will take them away from you immediately and will not have access to them. The choice is yours, but if we talk about retirement, then it is better to pay taxes and live peacefully.
Use these resources for calculations:
- Tax braket calculator -https://www.taxact.com/tools/tax-bracket-calculator.asp
- Quick Pension Calculator -https://www.ssa.gov/cgi-bin/benefit6.cgi
- Inflation Calculator -http://www.buyupside.com/calculators/inflationjan08.htm
- Life Span -https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=average+life+expectancy+usa
Do not rely only on the state pension. I assure you that everyone in retirement will need more money than the state can give. Therefore, there is time now to think about it and change something.
First read the information about the 401k i IRA and decide on a foundation that you can open.
Also invest your time in exploring where to invest money with 401k or IRA. You can enter the site. Vanguard and view the free retirement plan (this course is in English, but the text itself is simple, so you will also work on your English). I know that we are all busy, but the news on TV or the new series can wait. Invest your time in developing your future.
Find out more
Also you can always go to the site www.ssa.gov and learn more about retirement and everything that concerns her. If you do not have good English and you find it difficult to understand the site, then there is also a section on Russian languagewhere you can get a lot of information.
The site also has abstract of the pension system in America. I warn you: it is rather big, therefore I recommend it only to those who want to know all the details.
About the Author: Andrey Boichuk - founder Immigrant porada (iporada.com) - platforms for Ukrainian immigrants in the United States. Cheerful husband beautiful wife and father of a joyful daughter.
This blog is translated from the Ukrainian language. The original article can be found on the website. "Immigrant Porada" (Ukrainian online advice platform for immigrants in the United States).
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