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As a mainstream country of immigrants, the retirement of the United States has been very concerned about. So, what do americans retire on? Where do you get your pension? Accord with what condition just can you get? Today small help for you to introduce in detail.
In fact, the American endowment insurance system has a history of more than 200 years. After long-term development, the current endowment insurance system is mainly composed of three pillars:
Government-led and mandatory social endowment insurance system, namely the federal pension system; The enterprise supplementary endowment insurance system, which is led by enterprises and co-funded by employers and employees, is the enterprise annuity plan. An individual savings system of pension insurance, known as an individual pension scheme, in which individuals are responsible and participate voluntarily.
These three pillars, commonly known as “three-legged stool”, give play to the role of the government, enterprises and individuals respectively, complement each other and form synergy to provide multi-channel and reliable old-age security for retirees.
Federal pension system
The federal pension system is a basic endowment insurance system led by the government, which is a kind of guaranteed social welfare provided by the American government for the retirees. The details are as follows:
1. Pay social security tax
The social security tax is at the heart of the federal pension system. Social security tax is the second largest tax after personal income tax in the United States. It is uniformly collected by the federal government according to a certain wage rate across the country, and it is mandatory for enterprises to withhold the monthly salary according to the employee’s social security number (SSN).
After the Social Security tax is collected centrally by the us department of finance’s domestic wage bureau, it will be dedicated to the Social Security fund set up by the Social Security Administration, the pension insurance management agency.
2. Social security tax rate
The social security tax rate is dynamically adjusted by the social security administration and implemented after the approval of the congress. The adjustment is based on projections of an ageing population and pension spending needs.
The social security tax, for example, was raised from 10.16 per cent of employees’ wages in 1980 to 12.4 per cent in 1990. The social security tax rate has not been adjusted since 1990. In 2015, the social security tax rate was 12.4% of the employee’s salary, which was paid by both the employee and the employer. That is, the employee and the employer each contribute 6.2% of the employee’s salary; For self-employed workers, 12.4 percent of their salary will be paid.
The federal pension system encourages people to “save more in social security taxes at work and receive more in retirement”. Employees with higher wages pay more in social security taxes and receive more in federal retirement benefits.
At the same time, in order to reflect social equity and prevent a small number of retirees from receiving excessive pensions, the social security tax has set a limit on taxable wages, and those salaries beyond the limit will not be subject to social security tax. The upper limit of taxable wages is adjusted year by year with changes in prices and wages.
Receive a federal pension
Under the federal pension system, employees must pay taxes for 40 quarters (the equivalent of 10 years of contribution) before they can retire on a monthly federal pension. At the same time, the pension plan is linked to the actual retirement age. The federal pension system sets different retirement ages for people born at different times.
For example, the legal retirement age for people born in 1943 and 1957 is 66 and 66 for six months respectively, and the legal retirement age for people born in 1960 and thereafter is 67.
People who retire at the legal retirement age can enjoy full pension. There is no mandatory retirement in the federal pension system. For those who retire before the legal retirement age, the pension deduction will be reduced by 0.56% for each month in advance, and they can retire as early as 62 years old. Encourage people to retire after the statutory retirement age by increasing their pension by 0.25% for each month delayed.
If 70 years old retires, can take full pension 130%, the person that retires after reaching 70 years old, pension no longer continues to increase, still be full pension 130%.
Retirees are encouraged to continue to engage in work within their power. If they are engaged in gainful employment after retirement, if their annual gross income is lower than a certain standard, they can still receive all their pensions. If the income exceeds a certain standard, the pension will be deducted by 50% of the amount in excess; Workers over the age of 70, regardless of income, will not be pensioned.
Retirees receive federal pensions tax-free, but are taxed if their gross annual income exceeds a certain amount. The beneficiaries of federal pensions include not only the retirees themselves, but also their spouses who meet certain criteria (including divorce), underage children (including adoption), and so on.
Enterprise annuity plan (401K plan)
Enterprise annuity plan is an enterprise supplementary endowment insurance system that is led by enterprises, co-paid by employers and employees and enjoys tax benefits. It is one of the most common retirement benefit plans provided by American employers for employees.
Prior to the 1980s, many private companies in the United States had their employees’ pensions fully paid by their employers, especially those with strong labor unions. Employers were forced to take full responsibility for the benefits of retired workers. Although this way of retirement benefits is beneficial to employees, it increases the economic burden of employers and is not conducive to business operation and development.
In 1978, section 401 (K) of the internal revenue code of the United States stipulated that different types of employers, such as government agencies, enterprises and non-profit organizations, could enjoy tax benefits if they set up accumulated pension accounts for their employees.
Under this provision, more and more American companies are choosing to co-fund and co-build retirement benefits between employers and employees. Therefore, the American enterprise annuity plan is also called 401K plan.
Currently, 401K plans have become the preferred enterprise supplementary pension system for many employers in the United States.
2. Account management
After the employer sets up a special 401K account for employees, both parties jointly pay a certain amount of money into the account. That is, the employer has an investment in the employee’s account. The total annual employee contribution may not exceed the prescribed limit ($2,000 in 2014); The proportion of the employer’s contribution to the employee’s wages is determined by an agreement between the employer and the employee.
The 401K account is owned by the employee and will be transferred by the employee to any fund company selected by the employee to provide the 401K plan.
With 401 k plans of employers, typically specify a fund company manage employee 401 k account, the funds normally there are different types of portfolio for the selection of employees, have a fixed deposit, stock fund, bond fund, index fund and balanced funds, portfolio from the most conservative monetary market to the most radical of emerging markets.
Employees make their own investment decisions and take investment risks. Generally, when employees are young, they will choose a more aggressive investment portfolio to obtain a higher return on investment. However, as they grow older, their investment methods become more conservative. The pension that employees receive from their retirement accounts depends on how much they contribute and the state of their investment returns.
After the implementation of the “401K” plan in the United States, its funds quickly formed a good interaction with the stock market. Employees of large American companies invested about 1/3 of their pension funds in their own stocks, and the dow Jones index rose by 1283.25% from 1978 to 2000.
3. Tax incentives
401 (k) s have been called “the biggest gift the government has ever given the middle class.” 401 (k) s retirees and their beneficiaries get a real tax cut.
The Tax Defer is as deferred. According to the law, employees are exempt from taxes on contributions and investment income in their 401K accounts, and do not pay personal income tax on the total amount of their accounts (including interest, dividends and added value) until they receive a pension from the accounts after retirement. Since the income of retirees is generally lower than before retirement, the tax base will be reduced accordingly. If investment income is exempt from tax, the actual individual income tax paid will be greatly reduced.
4. Conditions of claim
The 401 (k) plan requires that the account holder be 59.5 years of age or older. Death or permanent incapacity to work; Medical expenses greater than 7.5% of annual income; Leaving office, being laid off, being fired or retiring early after the age of 55. Households that withdraw money before the age of 59.5 face punitive taxes. But you’re allowed to borrow money in advance and pay it back into the account.
When householder retires, can choose one-time get, instalment to get and turn the means such as deposit to use fund of 401K account. At age 70.5, employees must start withdrawing money from their personal accounts or face a 50 percent tax on the amount of their withdrawals. The aim is to stimulate current spending by retirees and avoid the trap of under-consumption.
5. Civil service pension scheme
America’s public-sector pension scheme is similar to the 401K for private-sector employees. In June 1986, the United States adopted the “federal employee retirement system”, which stipulated the pension, relief and disability benefits management methods for all civilian employees of the federal government. The main content of the system was basically consistent with the 401K plan for enterprise employees mentioned above.
Civil servants at the local level (state, county, city) in America have set up their own 401K pension schemes.
Individual retirement plan (IRA)
Individual pension plan (IRA) is a kind of individual supplementary pension plan provided by the federal government with tax preference and voluntary participation of individuals. Individual Retirement plans (iras) were established in the 1970s. The core of iras is the establishment of Individual Retirement Accounts (iras).
1. Account management
Unlike 401 (k) accounts, IRA accounts are set up by participants themselves. All individuals aged 16 and older and under 70.5 who earn no more than a certain amount per year can open IRA accounts at Banks, fund companies and other financial institutions that are eligible to set up IRA funds, regardless of whether they participate in other pension plans.
The head of the household can determine the annual payment amount based on his income and deposit it into the account before April 15 of each year. The IRA has a maximum contribution limit.
For example, the maximum contribution limit for people under 50 in 2014 was $5,000. People who earn more than a certain amount a year cannot participate in an IRA plan. For example, those who have 401K plans and are unmarried earn more than $56,000 a year, while those who are married earn more than $89,000 a year and are not eligible to file for that annual IRA.
IRA accounts are managed by the head of the account. Financial institutions such as the opening bank and the fund company provide investment advice on different combinations of IRA funds. The head of the account carries out investment management according to his specific situation and investment preference at his own risk.
IRA accounts have a good transfer mechanism, allowing owners to transfer 401K funds to IRA accounts when they switch jobs or retire, avoiding unnecessary losses. After householder retires, the annuities that gets from the account depends on pay cost how many and investment accrual condition.
2. Tax incentives
An IRA is not an investment, it’s a savings activity. Participants can use the money in their accounts for investments such as stocks and bonds, but those principal and earnings are tightly limited and are held in an IRA, with no transfer to other accounts, to force the money to be used in retirement.
Iras offer a variety of tax benefits, including exemptions, compared to regular investment accounts.
Defer pay taxes, do not pay individual income tax inside annual duty-free quota (namely highest capture expends limitation), pay taxes again when drawing after retiring. Income tax on interest, dividends and investment income is exempted.
Participants can choose to save pre-tax or after-tax income. If pre-tax income is saved, individual income tax should be paid to the total amount of the account at the time of collection. If you are saving after-tax income, you will have to pay personal income tax on the years of added value at the time of collection. Tax incentives have contributed to the continued rapid growth of the IRA.
3. Conditions of claim
IRA heads are not eligible to receive IRA contributions until they are at least 59.5 years of age, and early withdrawals are subject to a 10% penalty. The government’s move is designed to encourage households to wait until retirement to start using IRA funds. The rules also stipulate that households must start withdrawing money from their accounts when they reach the age of 70.5.
In recent years, IRA plans have spawned different types of IRA, including Roth IRA, SEP IRAs, and SIMPLE IRA. Different from traditional iras, Roth iras provide different choices in terms of payment conditions, annual tax exemption amount, withdrawal time and tax exemption method, etc., which allow individual industrial and commercial households and small business owners to make more personalized arrangements according to their income and employment status.
For example, unlike traditional iras, Roth iras pay individual income tax when they deposit money. Roth iras pay tax-free after retirement and do not force the head of a household to withdraw the amount from the account when he reaches the age of 70.5. In addition, unmarried and married people who earn more than $125,000 and $183,000 respectively are not allowed to declare a Roth IRA.
As an important part of the American pension system, the IRA plan is also a macro-control measure frequently used by the American government. The increase of the tax exemption amount in the IRA account increases a huge amount of investment in the national IRA fund, which is invested in various industries in the United States through an effective investment system, thus promoting the economic development of the United States and enabling ordinary americans to share the benefits of economic growth.
In general, the federal pension system, 401K plan and IRA plan play the roles of government, enterprises and individuals respectively, achieving multi-level security effect. Among them, the federal pension system provides the most basic old-age security for the elderly, providing “timely assistance”, while the 401K plan and IRA plan can effectively increase the real income of retirees, which is a “icing on the pan”.
At present, although many American enterprises are not involved in the 401K plan, because the “baby boomers” are the earliest beneficiaries of the 401K plan, as this generation gradually enters the retirement age, the 401K plan will play an increasingly important role in the American pension system.