The reform of the pension system in America, which occurred in 1935, is one of the most successful. Includes three subtypes: state, based on contributions from the employer or employee; non-state, based on voluntary contributions of citizens to special accounts and a pension savings system, aimed at increasing the voluntary contributions of workers and employees by a state or private organization. The cornerstone of the system is voluntary contributions. There are currently 47 million retirees in the United States, representing 13% of the total population.
Features of the US pension system
The starting date of the pension system is 1935. The amount depends entirely on your lifetime income and working life. Americans are a nation that values success, tenacity and perseverance.
They do not shift all social payments onto the shoulders of the state, but themselves actively participate in the formation of contributions to ensure a peaceful old age.
It is customary for Americans to invest money, forcing it to work and earn interest on the profits. Like a contribution, a pension is inherited rather than transferred to government accounts.
The money for government payments comes from a fund that is financed from the country's debt obligations. According to experts, he collects about $100 billion from interest on the loan. Given America's stable economy, it has funds to support privileged categories of citizens.
Pension legislation in the USA
Most payments for pensioners are based on voluntary savings. The population transfers some amounts to non-state pension institutions, opening their account there. Workers and employers pay the same tax. If you exceed a certain amount, then no tax is paid. A good salary allows you to accumulate 2-3 pensions from different funds:
- private: payments depend on accumulated funds;
- state: through contributions;
- employer: large companies offering benefits (social package).
In the USA, Europe and Canada, the main emphasis when calculating benefits is on the amounts accumulated by a person independently during his working life.
How is a pension formed in the USA?
The system is built in a special way.
The manual has three parts:
- State.
- Savings.
- Non-state.
It turns out that the state, the employer and the resident himself participate in the formation of payments. When calculating how much a pension is in the USA, you need to take into account your length of service; 1 point (point) is awarded for each quarter. The widow or widower has the right to receive half of the deceased spouse's payments, which will be added to their own funds.
State pensions
The obligatory part is made up of contributions from the employer and employee at 7.65% of the salary on both sides (Defined contribution). It turns out that if an employee receives $1,000, then 76.5 is deducted from the salary and the employer contributes the same amount from his own funds.
There is a limit for mandatory contributions of $65,4000 per year. Not a single cent will go beyond this limit. For American entrepreneurs, contributions are 15.3% of income, that is, they pay both as an employee and as their own employer.
The average amount for the state portion is approximately $1,000. By the standards of the country, this is an insignificant minimum. In many states, this is just a living wage, which is enough to make ends meet.
In the event that the generated amount is not enough to meet the minimum established in the state, the local budget pays up to the required amount.
Non-state funds
In addition to social benefits, every citizen has the right to enter into contracts with non-state funds. It is the account that is opened; it can often be seen under the abbreviation IRA, which stands for individual retirement account. An American puts aside certain amounts for it, the amount of which he himself determines.
If you contribute less than $2,000, it is not subject to taxes. Access to the account opens after 60 years. The moment of accrual of tax on savings occurs at the time of withdrawal; before that you do not need to pay anything to the state. After age 80, the account is closed.
In America it is common to invest. Part of the money goes to the stock exchange to purchase assets and securities. Turnover helps to get a percentage of profit. In 2021, despite all the circumstances, the investment trend has continued.
Private companies may go bankrupt. Force majeure is covered by state insurance. The country's budget guarantees significant compensation for lost finances. If you manage it wisely, then in old age an American will receive good dividends.
Cumulative part
The last part is cumulative. It is understood that a person has the right to save money in a personal account. Voluntary savings are not taxed. An elderly person simply uses a savings account and withdraws the necessary amounts. There is a caveat: if you withdraw money before the due date, you will have to pay tax.
As a result, the size of the pension in the United States depends on the guaranteed state portion and on the citizen’s civic position. Americans are an enterprising people.
It is completely normal for them to become investors and save money whenever possible. The funded part can be financed by employers, then they receive tax benefits as an incentive from the state.
The population is provided with a pension in the United States, the size of which allows them to maintain a decent standard of living.
Types of pensions
Payment of pensions is tied to the social insurance system, which has been successfully operating in the United States for many decades. In the event of an insured event (reaching a certain age), the state guarantees the person, if the latter meets certain conditions, a monthly pension payment for life.
At the same time, the entire pension system can be divided into three types:
- State insurance pension system. According to it, the employer and the employee themselves pay appropriate pension contributions from income. It is these contributions that serve as the basis for the formation of a future pension.
- Provision within the non-state system. The key here is the opening of special accounts, where a citizen has the right to voluntarily transfer money towards a future pension.
- The pension savings system, the essence of which is that an organization (can be either public or private) accepts into its account part of the employee’s pension contribution (with his consent), and in the future these amounts are increased, serving as an additional payment to the general state pension.
US pension system
State support
This system is formed by insurance pension contributions, which are paid to the pension fund. Pension insurance in the United States is part of the social insurance system. The contribution rate is set at 7.65%, this amount is required to be paid by both the employee and his employer: thus, the total contribution amount is 15%.
At the same time, part of the percentage will be used for further medical care in old age, but the main part will be used exclusively for the formation of a pension. Moreover, if you work as an individual entrepreneur, then you pay double for yourself, i.e., both as an employee and as an employer.
State Old Age Security is the main type of pension that most Americans receive. This is what we will talk about in the future in the context of age, conditions of receipt, size. Now we will briefly describe other types.
The United States has one of the highest retirement age thresholds, but Americans see only advantages in this. More details in the next video.
Cumulative part
Of the percentage that is paid to the pension fund, you can send part of it to the savings fund to form the savings part of the pension. Such funds can be both public and private. The benefit of this method is that the funds deposited in the funds grow at interest (usually 9% per year), and by the time you reach retirement age you can get a good increase in the main insurance state pension.
Access to funds is usually provided to a citizen after a certain period (5-7 years).
Non-state provision
In addition, American citizens have the right to independently enter into agreements with non-governmental organizations regarding the payment of a “private” pension in the future. In such cases, an account called an individual retirement account (IRA) is opened in the name of the future pensioner, into which the citizen has the right to deposit sums of money. However, if you deposit less than $2,000, the transaction is not subject to taxation.
When a person turns 60, they have access to the money in this account. If he decides to withdraw money, he will have to pay a fee, but until that moment the money in the account is again not subject to any taxes. When a pensioner reaches the age of 80, the account is closed.
Average life expectancy of pensioners in different countries
Typically, such services are provided in the banking sector, as well as in private mutual funds and investment funds. The conditions are negotiated individually.
Pension size in the USA
The benefit amount depends on several different factors:
- state;
- cities;
- salary level;
- type of activity;
- length of service
An American with a permanent position can count on payments of up to 44% of his salary, this will ensure a comfortable life. If he has worked for less than 10 years, then social benefits are assigned. You can leave before the official deadline. The benefit will then be 100% if your income is less than $1,5720 for the year. If this amount is exceeded, a coefficient of 0.5 is used.
Retirement age in America
In the USA, the concept of “retirement age” does not have such a specific and fundamental meaning as in Russia.
At what age do US residents retire? As a rule, people retire much later than in our country, as is often said by supporters of raising the retirement age in the Russian Federation. At the same time, one cannot ignore the objective fact that the life expectancy of American citizens is significantly higher than that of Russians. Moreover, it is growing at a fairly rapid pace, which undoubtedly creates the need for some changes in it in the future, which is already being debated in American society.
In general, the general retirement age in the United States is 67 years old. However, its achievement is not a mandatory factor for receiving financial support. You can go on vacation between the ages of 62 and 70 under various circumstances.
This largely depends on the year of birth. Thus, all citizens, without exception, who were born before 1937, began to receive a pension at 65 years of age. Subsequently, for persons who were born between 1937 and 1955, the retirement age increased, but very gradually - 2 months per year. Those who were born in 1956 or later retire at age 67.
However, Americans have the right to retire early - at age 62. This requires compelling reasons, which include:
- difficult and difficult working conditions;
- dismissal at the initiative of the employer;
- availability of sufficient pension savings.
Early pension is paid on the basis of an application received from the employee, however, it should be noted that it will not be calculated in full, but in an amount equal to 74% of the amount that the employee would have received if he had retired at a later age.
Attention! US citizens who have an income of less than 15 thousand dollars a year have the right to apply for an early pension and receive it in full.
In addition, Americans can continue to work after reaching age 70. In this case, the amount of their security will increase quite significantly.
Unlike Russia, there is no difference in retirement age between men and women. At the legislative level, it is 67 years for everyone . However, according to available statistics, if men do go on vacation at this age, then women stop working a little earlier - at 65 years old.
Average pension by state
On average, the amounts are $1300 – 1400. The pension is considered a source of income and is therefore taxed. The average rate is 30%, the final value depends on the state. Traditionally, it is lower in the South, which is why there is a migration of retirees to California, Florida, and Hawaii.
For example, a New York resident must pay federal, state and city taxes, so the minimum payment here would be $821. Whereas in Texas and Florida there are only federal payments, and you can get more in your hands.
Utah, Kansas, Nebraska, Massachusetts and Vermont traditionally rank among the slowest states to retire due to low payouts.
What can the average American expect, depending on qualifications and experience:
- No length of service or experience - $300;
- Short experience, on average up to 10 years - $600;
- Simple blue-collar jobs, average income - $750;
- Highly qualified personnel - $1500;
- Military, teachers, doctors, firefighters, officials, police - $3,000;
- President = $16,000.
The privileged group traditionally includes professions whose representatives save, teach, heal, and protect. High-level specialists are much more expensive.
Amounts of pension payments
Average pension in the USA
The state pension in America is approximately 42-45% of actual wages received. An ordinary citizen who retired due to old age in America receives on average from 1.1 to 1.3 thousand US dollars per month.
The amount of pension payments depends on the category to which the citizen belongs. By and large, in America there are five main groups according to which the amount is regulated. Explore them:
- military personnel and veterans - $2000-3000;
- programmers and IT specialists – $1,500;
- hired workers (for example, a secretary) - $700-800;
- persons with at least a minimum amount of work experience for the benefit of the United States - $600;
- Age pensioners without official American work experience – $300.
In general, all categories of people in America receive a good pension. For example, according to statistics, a firefighter with 20 years of experience can receive more than 50,000 annually.
Do Americans have enough pensions?
The average American spends per month:
- $430 – food;
- 900-1200 dollars – payment for housing (housing and communal services, rent);
- $150 – clothes;
- $750 – public transport;
- $460 – maintenance of your own car;
- $625 – medical insurance and everything else related to a citizen’s health;
- $250 – other.
According to the National Institute on Pension Security, 99% of old-age pensioners receive benefits from social programs, which are mostly spent on food and housing. For example, the Eighth Program allows pensioners over 62 years of age to obtain free accommodation, another program issues food stamps, and so on.
Data from the U.S. Department of Labor's Bureau of Labor Statistics for June 2018 reported monthly insurance benefits of $1,234. For persons who have not worked a single day in their entire life, funds are provided, naturally, less than the specified number - $ 822 upon reaching 65 years of age (along with a supplement from the state). This social norm works for all citizens of the country, without exception. For a married couple, the minimum pension benefit will be a little more - 1.1 thousand dollars. Of these, it is spent:
- $600 – medicines;
- $150 – clothes.
- The social program provides free meals (194 food stamps);
- Accommodation without payment can be obtained under the eighth program after 62 years of age.
Thus, the pension covers expenses to a greater extent, and in this case, it is enough for the average American.
Preferential benefits
Some citizens have the right to receive benefits and support. Old people are given money for food, public canteens are opened, which exist at the expense of charitable foundations. In private cases, the state budget helps pay for utilities.
When people retire in the United States, single people have the opportunity to go to a state nursing home. Judging by the reviews of Americans, they are not inspired by this prospect. If your own savings are not enough, you can count on help paying for home visits from a health worker.
A bus is sent to apartment buildings to collect older people for trips to the store and back. Disability benefits are provided.
Given the turnout of voters, state authorities are meeting the wishes, but such additional measures do not exist everywhere.
Problems of the American pension system
Despite this rosy picture, America's pension system has problems. Rising unemployment affects tax revenues. The fewer people work, the less payments the state receives. And as a result, there is a small increase in pension payments.
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Cases have also become more frequent when a person, hoping for additional payments, made contributions to a non-state fund, and after a while this organization declared itself bankrupt. In this case, the person loses about 40% of the payments due to him.
At what age do Americans retire?
The system has no concept of the exact number of years after which a person is guaranteed to receive benefits. The age from 62 to 70 years is considered the retirement period. A citizen has the right to leave earlier, but payments are reduced by 5 - 7% for each deducted year.
Some of the population can leave earlier legally without deductions. If you don’t leave, then the payment grows by 8% every year. A financial bonus encourages you to stay at work and lead your same lifestyle.
Formation of payments
The pension system is designed in such a way that it is divided into several components. The state participates in the formation of the monthly payment, and the employer and pensioner also fulfill obligations.
The royalty systems of America and Russia are very different. In Russia, most of the payments fall on the shoulders of the organization providing work to citizens. That is, the main costs fall on the employer. Accordingly, it becomes unprofitable to hire new workers, this is how the Russian pension is formed, in the USA it’s the other way around.
Americans reduce the burden on business as much as possible, thus giving impetus and stimulating the creation of new jobs.
State pension
Each officially employed American pays contributions to the state, the employer does the same, and 7.65% is withdrawn from each of them. But these payments are limited; more than a certain amount cannot be withdrawn, no matter how much the worker earns.
The average government-paid pension for a US citizen is about $1,000 for women and men. If it is below the minimum amount, then benefits are paid from the local budget.
The 2021 American pension is formed taking into account government support and the civic position of the American himself. The size is practically not affected by events, inflation, it depends only on how many years you went on vacation and your total work experience. A person who worked hard and earned good money does not have to worry about life in old age; it will be comfortable.
Non-state funds
Most Americans use the services of non-governmental funds with which they enter into a contract. To provide financial security, a citizen must acquire an individual retirement account (IRA). By the way, it is also taxed. The resident already puts aside a certain amount for it, the amount is determined by the investor himself.
Contributions up to $2,000 are tax-deductible. It will be possible to use this account only after reaching the age of sixty. Moreover, most people put this money to work, using it to purchase assets and securities, which allows them to receive good dividends.
Moreover, all operations are necessarily insured by the state, so the risk of ruin is not terrible, everything is guaranteed to be compensated.
Cumulative part
Another option that allows you to increase payments is to use a funded pension, when a citizen saves part of his salary throughout his life in a personal current account. No tax is imposed on these voluntary savings.
But even here, there are some conditions; the resident has the right to use the accumulated amount only after reaching a certain age. If there is a need to withdraw funds earlier, you will still have to pay tax.
Special cases of early care
Military personnel only need 20 years of service to qualify for benefits. Wounds and injuries are considered a valid reason to leave even earlier than this. Police officers have different requirements: at least 55 years old, at least 20 years of experience.
Other categories of citizens can retire at the age of 62 upon a special application.
In what cases is it possible:
- enough money has been saved for a secure old age;
- work involves heavy physical labor;
- the specialty is under constant mental stress;
- employer initiatives that set corporate standards for care.
For the category of poor citizens (income less than $15,000 per year), 100% of the required benefits are paid.
Possibility of earlier retirement
However, it should be noted that the pension system in the United States is quite flexible, so if a citizen wants to retire earlier than the designated time, he can do so quite legally after he reaches the age of 62.
At the same time, only those Americans whose annual income level does not exceed the limit established by law can receive a full pension. Otherwise, assistance will be assigned, the calculation of which will be carried out according to the rule of deducting fifty cents from the pension for every dollar that turns out to be earned above the established level.
US military and police pensions
Average pensions in the United States for military personnel are 50% of wages. Supplements of 2.5% are provided for each year of well-deserved retirement. The military is also provided with additional benefits from the state.
Sergeants, pilots and sailors earn between $780 and $1,770 per month. For junior lieutenants, from 2370 to 5300. In addition, for senior officers, amounts start from 5000 and can reach 17500.
It is logical that in order to receive significant benefits, you must be of at least the rank of colonel. Although if you convert it into rubles, you get impressive sums even for ordinary soldiers.
Police benefits are also considered half the salary. According to statistics, a police officer from New York who has honestly completed his required length of service is entitled to payments of about $53,000 per year.
System of public and private pension insurance funds
In the USA there are public and private pension funds. Despite the fact that a private fund may fail to invest its clients' funds or go bankrupt, Americans willingly donate their money to such organizations. Firstly, the likelihood of losing your savings is still small. And, secondly, the average state pension has its own limit (it cannot exceed $1,800). Typically, government benefits account for only about half of a worker's salary.
A working citizen who has not reached retirement age and has extra money on hand can pay contributions to 2-3 funds at once, and then receive several pensions at once. As a rule, all large companies create their own pension funds for their employees, where they themselves can make contributions.
The state pension is calculated as follows. For one year of work, the fund awards a citizen 4 points. Every American who scores 40 points or more becomes eligible for appropriate government payments. To inform citizens, the pension fund sends out letters at the end of each year in which legally working Americans are informed about the status of their accounts, the size of their potential pension, the number of points, etc. In critical situations, the funds accumulated in the state fund can be obtained in the form of a loan at a preferential rate . Americans who take advantage of this opportunity seem to borrow from themselves, and then return the money to the fund as a regular loan.
US Presidential Pension
The key figure of the state is under special treatment. Barack Obama increased payments to former presidents by 17.9% in 2021. The prudent step resulted in payments of $205,000 annually for him. This is exactly what the former head of state receives now.
In addition to benefits, the budget covers the costs of technical and administrative personnel, mail, transport, food, and provides security for 10 years from retirement. By 2021, the annual limit on team maintenance expenses has been set at $96,000.
The former president and members of his family, in accordance with a special order of the Minister of Defense, can enjoy the right to free treatment in military hospitals.
How do retirees live in the USA?
The country has a well-developed system of public and private pension funds. Often, a typical retired American is a person who receives 2 or 3 payments from different sources. Large companies create their own funds for contributions.
As a result, an American can devote his free time to his favorite hobby, grandchildren, and travel. Considering what pensions are awarded in the United States and the difference in the cost of living in different countries, elderly American couples have become desirable tourists.
How Russian pensioners live in the USA
Usually, the question of what kind of pension is in the USA is asked by people planning to move to permanent residence. It should be remembered that the country is characterized by strict adherence to rules.
You must be an immigrant with a green card, then you can count on a comfortable old age. But according to general impressions and reviews, conditions will always be better for local residents.
The benefit is based on the principle: work and accumulate points. Then, at the age of 67, with 35 years of work experience, you can apply for full payments.
After obtaining citizenship, a newly minted American can bring his parents. They will have the right to American benefits. Migrants over 50 years old receive the minimum. Among this category there are often people who do not quit their jobs until their death.
Russian pensioners retain the right to receive payments from their homeland. You will need to apply for a card with the function of withdrawing money abroad. Cash can only be received from a bank in the Russian Federation. Every year, a notification is sent to the Pension Fund through a notary or consul, confirming that the person is alive.
Russian elderly people in America live a little worse than native Americans, but they do not complain. There is enough income for theaters, cinema, utility bills, nutritious food and medical services. They are given benefits entitled to citizens on a general basis. Compared to Russian realities, emigrants settled down with dignity.
Social protection programs in the USA
Most American retirees live quite comfortably by visiting inexpensive stores. Many people have enough money to travel. There are thousands of social programs in the country for recipients of modest benefits.
There is an SSI program. According to its terms, an elderly person is given a monthly amount that is not enough to meet the subsistence level. The “Eighth Program” is widespread in the country, providing a voucher that allows you to save 25 to 30% of the pension on rent.
Disadvantages of the US pension system
The period 2021–2021 showed the likelihood that the pessimistic forecast will come true. Analysts have repeatedly predicted the collapse of the system. The problem is that the baby boomer generation is retiring. This is a large and active group of people who have worked for many years, supplying the budget with contributions.
The sharp rise in unemployment due to the coronavirus pandemic has placed additional strain on funds. The pension fund has become a moneybox from which funds are taken to solve specific problems and plug financial holes.
Americans will most likely face an increase in the retirement age, a reduction in benefits, and a reduction in benefits. Retirement in the United States in 2021 could cause unrest and popular discontent.
Advantages of a distributed pension system
Thanks to a growing, stable economy and a basic government pension program, all citizens of retirement age in the United States receive defined benefits. The investment model of pension funds ensures the infusion of additional funds into the business.
Private funds compete for investment assets, improving reliability and quality of services. Companies offer employees favorable terms of the social package and increase rates on pension payments, winning the loyalty of employees.
At the same time, the practice of opening an IRA allows Americans not to rely on the state or employers, but to take care of the future on their own. Many US citizens use the funds accumulated over years of constant work to open their own business or invest in the business of younger relatives, ensuring an increase in family income.
In fact, retirement under this model becomes not a refusal to work, but a change in type of activity. The period of employment allows you to collect significant start-up capital. The ability to claim a partial payment of a state pension before reaching full retirement age and the availability of funds in the account encourages Americans to give up office work much earlier than 67 years of age.
A system of pension payments coming from unrelated sources allows Americans to count on at least a minimum amount of monthly cash income.
This model insures pensioners against the loss of all savings in the event of a government crisis or bankruptcy of an individual company.
