The pension system of the United States: basic principles and differences from post-Soviet countries
Author: Anna Kazakova
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Sooner or later each becomes relevant to the question: what is the pension system in the country where we live, work and pay taxes. For many residents of the former Soviet Union, moved to permanent residence in the United States, principles of the existing pension system here seem confusing and incomprehensible.
The experience of previous generations most often negative, will retire and life will end. Pension payments, in our view, enough is that so modestly, without frills, to pass the remaining years. However, the pension system of the United States, recognized as one of the most efficient in the world, gives you the right to expect a very different future. Using all of its features, you will ensure yourself a very decent living after retirement. In the United States with the retirement life is just beginning: the children grew up, loans paid, stable income.
What you need to know that the pension was a joy in the US? What are the main differences from the usual system at home?
Principles of the pension system in the United States
First of all, future retirees are interested in, from what sources formed their pension. Officially in the US there are 3 ways of storage:
contributions to the Fund of pension insurance, monthly payable by the employer;
personal investments and savings;
social payments (Social security)
All able-bodied citizens of the USA can form their own pension, depending on personal preferences and capabilities using all three methods of savings.
Contributions of employer and personal savings
Employers are obliged to make monthly deductions from the salary to the pension Fund. The size of the contributions depends on the pension plan and scale of the company. Most often us employers offer their employees as a bonus, opening a pension account, 401(k).
401(k) is a special account into which the funds pays the employer. This allows the hired employee to transfer a certain percentage of the gross amount of their wages on a tax-free account. More precisely, the tax is deferred until retirement account holder. Thus you can save on taxes now, thus for the future. Usually the payment made to the 401(k) accounts is 6% of the amount of wages before taxes.
In 2018 all U.S. citizens under the age of 50 years may be transferred to your account 401(k) not more than $55.000. However, only $18.500 can be listed as voluntary contributions. The remaining amount of $36.500 can translate only the employer. So actually the possible amount of savings for the year does not exceed $20.000-25.000, as very few employers make such generous payments on 401(k).
SIMPLE IRA – the second most popular type of pension plan provided by the employer. It is also called the Savings incentive account for employees IRA (Savings Incentive Match for Employees IRA). Most often, this plan offer small private companies. Works on the same principle as 401(k). The employer pays from 1% to 3% of the amount of salary before taxes.
SEP IRA – type pension insurance for self-employed people without hired employees. The main feature of the SEP IRA is the high limits of contributions. You can contribute to your retirement account up to 25% of the gross annual salary or 20% of net annual income. However, the contributions into the SEP IRA may not exceed $55 thousand per year.
Social insurance (Social security)
Social insurance is a Federal program of financial assistance to residents of the United States, as well as dependent on them family members (children, spouses, parents) in case of their compliance with established requirements. Social security number is mandatory when applying for a job.
Every employed person in the US pays tax for social insurance. The funds received are transferred to the trust Fund from which payments are made already retired people or other needy US citizens (widows, children, disabled people including). Thus, social insurance is a source of formation of the budget for the payment of pensions, unemployment benefits for lost capacity to work, payments to beneficiaries, etc.
At what age a US citizen can use the package of social insurance?
Traditionally, this age was considered 65 years (for both sexes). To qualify for a pension it was possible beginning with 62, but in this case the size of payments was reduced by 20%. Currently the age limit raised to 66 years and 2 months for people born in 1955, with a gradual increase to age 67 for those born in 1960 or later. Early retirement remains possible, starting at 62, but payments will be cut even more – up to 30%.
There is a financial bonus for postponing retirement. People who have reached the age of retirement in 2018, will get 8% extra for every extra year worked, that is, before registration of pension payments. This means that if the worker will request pension payments not in 66 years, and 70, the amount will increase by 24%. However, in 2018 this figure is limited and may reach a maximum of $3 538 per month.
The main differences between the pension system of the United States from post-Soviet
In the former CIS countries (Russian Federation, Ukraine, Belarus) pensions are formed only from a single source of contributions to the pension Fund of the country while you are working.
In Russia in 2018 reform to divide pension payments in 2 parts: insurance and cumulative.
In 2018 the retirement age in Russia is 60 years for men and 55 years for women. In June 2018, was adopted a bill to raise the retirement age to 65 and 63 years, respectively. Given the average life expectancy of 70 years for men and 80 for women, it turns out that the average citizen will be able to live on welfare in the near future not more than 5 years.
To receive a pension in the Russian Federation it is necessary to study a minimum of 5 years officially (for 2015), with a further increase of this indicator up to 15 years in 2024. In the United States to request pension payments by the social insurance scheme on the basis of at least 10 years of contributions to the Fund.
August 28, 2018, the President of Russia made a statement of intent to leave age of retirement for women to 60 years (instead of the previously announced 63 years). While the statement is Advisory in nature as the project in its original form has already passed its first reading in the Supreme legislative body of Russia.
In Ukraine also carried out pension reform, but changes relate for the most part not of the age of retirement and minimum seniority. So, at the age of retirement to 60 years for citizens of both sexes, to request pension payments starting in 2018 only those whose seniority is at least 25 years. By 2028 this will rise to 35 years. All those, whose experience will be less than 15 years upon reaching the age of 65 years will not receive pension payments from the state. Instead, the program provides for the payment of social benefits.
A full comparative analysis of pension systems
The analysis shows that the pension system in post-Soviet countries still needs improvement. As one of the indicators in the table is used AgeWatch index, which is needed to display the level of life of older people in the world. The smaller the number – the higher the standard of living. It is significant that in the United States AgeWatch index for 2015 amounted to 9, in Russia – 65, and in Ukraine — 73.
If a retired Expat is to follow these simple rules, then after a while will turn into a cute smiling American
Analytical center, compared the 100 largest cities in the U.S. to choose a place where seniors will feel most comfortable spending your old age.
Enough to miss an opportunity to save! Sometimes it is enough just to ask about the availability of discounts for seniors, to get them. Many older people will be very surprised to hear that using online programs, they can save from $6 thousand per year.
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