How can I plan ahead for retirement in the U.S.?
What are the U.S. pension systems?
The U.S. pension system consists of three main systems: the Social Security Benefit; some corporate and government pension plans; and 401Ks and IRAs with individual contributions.
1. Social Security Benefit (SSB)
The general public in the U.S. pays 6.20% of their income in Social Security taxes on their regular job, the same percentage for corporations, and 12.40% if they are self-employed. The normal retirement age in the U.S. is now 66, but for those born after 1960 it is 67. To obtain a pension, one must have saved 40 points, one point for every 1,130 earnings, but up to four points per year, so that one must work at least ten years. If the spouse does not work or does not meet the years of service requirement, he or she may also receive a small pension. If the spouse dies, the other spouse (who must be of retirement age) and minor children are also covered by Social Security, and there is no pension. 2.
2. Some company and government pension plans (Pension Plan)
Corporate and government pensions can be easily confused with 401Ks, but the differences are very clear. First, pensions do not require employee contributions, while 401Ks require employees to contribute their own earnings. Second, pension benefits are paid by the company after the employee retires, so if the company goes out of business or becomes unsuccessful, the pension payments can easily go down the drain, whereas the funds in a 401K account belong to the employee, even if the company goes out of business or the employee changes jobs.
In the United States, pensions are not an obligation of the company. Since pension benefits are a heavy burden on the company, and retired employees do not want to lose their pension if the company is in trouble, more and more companies are reducing or not offering pension benefits to new employees and are instead offering 401K Match (where the employee saves a sum of money in his or her 401K account and the company deposits the same amount of money) as a retirement benefit.
3. Individual Participating Pension Accounts: 401Ks and IRAs
Originally, Social Security Benefit and Pension Plan did not require employees to participate in the management of their own retirement, and the monthly benefits after retirement were defined, but as Social Security Benefit becomes more and more difficult to pay and the corporate government tends to reduce pension plans, the only two pension plans that younger generations can really rely on in retirement are 401K and IRA.
401Ks and IRAs are divided into Traditional and Roth, respectively. Therefore, we actually have four choices: a Traditional 401K, a Roth 401K, a Traditional IRA and a ROTH IRA.
Your perception of future tax rates may affect your retirement strategy：
1. If you believe that future tax rates will be lower than today, there is more reason to save pre-tax, such as for qualified plans or traditional IRAs.
2. If you think your tax rate will be higher in the future, you may want to consider a tax-free retirement policy, such as a ROTH IRA or whole life insurance.
Roth IRAs: a great option. If you qualify. In order to make a deposit to a Roth IRA, your adjusted gross income must be below a specific threshold. For 2018, deposits are limited to $5,500 per person per year, but if you are age 50 or older, you can make an additional $1,000 as a catch-up deposit.
The question arises: If you are not eligible to participate in a Roth IRA, or if you want a larger amount to deposit, what options do you have?
Whole Life Insurance: The primary purpose of purchasing whole life insurance is the death benefit coverage it provides. However, whole life insurance can provide a tax-deferred accumulation of cash value that can be used as a source of retirement income after you retire and may be income that is income free from income taxes.
Whole life insurance provides：
1. Income Tax-Free Death Benefit
2. Accumulation of cash value for tax deferral
3. Potentially tax-free retirement income
Other benefits of whole life insurance：
1. Security for the Other Half
In the unfortunate event of an untimely death, an income tax-free death benefit will help meet your spouse's retirement goals.
2. Withdrawal of funds in case of illness
You can choose an early benefit rider at no additional cost to you, allowing you to withdraw all or part of the death benefit or a portion of the death benefit to pay for expenses related to a terminal, chronic or critical illness.
3. Benefits in case of disability
Many policies offer an optional premium waiver rider, which is available at an additional cost. If you do not become permanently disabled, this rider will allow you to avoid continuing to pay the premium for the original plan, and your policy will remain in effect with your initial accumulation goal intact.
So what's best for you?
For many people, the ROTH IRA is a great tool. However, as mentioned earlier, there are some limitations to this approach as to how much you can deposit and where your income needs to be in order to qualify for a ROTH IRA Individual Account.
Whole life insurance may be the solution for you.
If someone is financially dependent on you, then you may need life insurance. In addition to death benefits, the cash value of whole life insurance can be used as a financial tool and has some great tax benefits. Premiums are based on the amount of coverage you need, and payments through tax-free withdrawals or loan time can often be made after the policy has been in effect for one year. Our insurance brokers can help you determine the best amount of insurance to meet your goals.
The best fit for you may be a combination of a ROTH IRA and life insurance.
If you meet the income eligibility requirements for a ROTH IRA, but you want to deposit more than the depositable limit and you need protection, you can choose both a ROTH IRA and whole life insurance. Deposit the maximum amount allowed in a ROTH IRA retirement account and then place the excess amount in life insurance.