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| Retirement Plans In The United States |
How to prepare your Retirement.
Working in the United States is good, allowing yourself to no longer work when you are old enough to retire is even better. Capitalization, distribution, contributions, pension funds or complementary plans ... The American system is all the more complex because it obeys a mixed system and very specific rules. Retirement in the United States, how does it work? Here is some tips to help you enjoy your senior years.
Distribution or capitalization?
The pay-as-you-go pension system has a simple rule: the workers of yesterday have contributed for us and we are working today for tomorrow's small bees.
The balance of this intergenerational solidarity rests on a good proportion between the number of contributors and the number of pensioners (ie on the percentage of the population that is active) but also on the overall growth of the country.
- Most European countries use a pay-as-you-go pension system.
- Set aside today for his own retirement: capitalization
The funded pension system implies that each worker set aside for his or her own retirement.
The money collected is then placed and the interest rate determines the final sum. Capitalization is carried out individually (the funds are placed in a bank account or invested in real estate ...), or entrusted to a manager (investment fund, pension fund ...).
In the middle: The American system - Pay as you go
The system is mixed: "pay as you go", ie it uses the distribution principle for the basic scheme provided by Social Security, and the system of funding for occupational pension funds Workers can also subscribe.
The basic regime: Social Security
The Social Security Act of 1935 and the establishment of the OASI
Since 1935 and the Social Security Act of Franklin Roosevelt, Americans are protected by a basic scheme called OASI - the Old Age Survivor Insurance. This system now covers about 96% of the population.
This "pay as you go" system is simple: the FICA Tax (Federal Income Contribution Act, also known as the Social Security Tax) is levied on employees' salaries or directly on Income of an employer. These taxes are automatically deducted from the wages and incomes of the workers, even if they never expect to benefit from their retirement in the United States.
Granddaddy makes resistance
There is no legal age at which an American can (or must) lay down his arms: an insured person can retire between 62 and 70 years of age.
Do not touch my retirement!
A worker knows in advance at what age he will be able to benefit from his "full social security benefits" full pension, as it is calculated according to his year of birth.
A worker also knows the changes that will be made to the amount of his retirement if he retires early or late according to his year of birth.
Calculation of the retirement pension
Must to know :
The pension is proportional to the reference wage and depends on the length of time the insured person has contributed. This reference salary is calculated according to the 420 best monthly remunerations (35 years of work).
The term of insurance is calculated in quarters which are called "credits".
- 40 credits
You must have at least 40 credits (ie 40 quarters of contribution) to qualify for the basic pension.
By 2015, a worker would receive a credit as soon as he earned $ 1,220, with a maximum of 4 credits per year, or $ 4.880. Some professions are subject to a different regime, for more information see the official website of the Social Security: Ssa.gov/Pubs/10072.html
- Calculation of monthly remuneration
The reference wage is thus calculated on the monthly and non-annual earnings, which benefits workers who have experienced short periods of unemployment and facilitates job changes.
Professional pension funds
The US Pension System of Social Security exists but most executives also contribute to occupational pension funds, subscribed by their company.
Pensions depend of course on the employment of the pensioner, and are managed by the employers. These amounts are often placed, and the pensioner disposes of them at retirement either in the form of a capital or in the form of a life annuity.
Defined Contribution Plans
The Defined Contribution Plan does not promise any specific amount, and both the employee and / or the employer contribute to its implementation.
This mostly consists of a fixed contribution from the employer, as 5% of annual income, which is often invested. The total amount will then depend on market fluctuations. One of the best known planes is the 401 (k), of which there are 4 different kinds.
The simple 401 (k) is the "Traditional": the employee makes contributions from his gross salary (before taxes are taken out). These contributions are then placed on a 401 (k) account and the employee chooses how to invest the money. Sometimes the employer also makes payments ( "matching contributions") up to a certain percentage.
The other 3 kinds of 401 (k):
Safe Harbor 401 (k): Similar to Traditional, with the difference that the employer makes contributions for each employee, who are immediately invested 100%.
SINGLE 401 (k): For SMEs with fewer than 100 employees.
Automatic enrollment 401 (k): Employers register their employees in a plan (style 401 k) and place payments deducted from their salaries on special investment accounts.
Defined Benefit Plans
These plans are powered by the employer. It can establish an exact amount, paid monthly; Or, more commonly, calculate profits by years of service and monthly salary.
Being a retired ... active
In the United States, and even at retirement age, work remains a right, and it is not uncommon for a pensioner to have a supplementary activity, either to keep the mind alert and the eye Alive ... to put butter in the spinach.
In the case of a combination of a salary and a retirement pension, the "retractive" is reduced on a temporary basis because, having worked more, the pensioner then sees the number of his credits increased and the amount of his pension Recalculated.
Good to know
- Employers option
Employers are not obliged to provide a pension plan to their employees: this is not required by federal law.
- Department of Labor
Disputes related to pensions are managed by the Ministry of Labor. In particular, it is the authority which deals with problems of application and interpretation of the ERISA, an act dating back to 1974 which aims to protect pension contributions from possible misappropriations.
- IRS: Internal Revenue Service
The IRS is the authority that defines pensions in terms of taxes.
- Plan administrator
For more information, contact your plan administrator, the HR office or your employer. This information is generally available in the "Summary Plan Description".
Practical information
Official website of the US Department of Labor - Retirement Plans, Benefits and Savings:
If you want to dig up the question of the types of existing retirement plans: