One of the typical doubt that more and more people under 40 are asking themselves is to understand if one day they will ever be entitled to a pension, especially in countries with very high public debt where the retirement age continues to rise, and whose younger workers have a decidedly discontinuous and jagged contribution history.
The issue of pension flexibility pushes governments around the world to discuss the evolution of demographic dynamics and the challenges of the aging population. In this sense, private pension funds are one of those solutions that is increasingly being considered by all stakeholders.
This type of investment allows the saver – when he reaches the requirements to retire – to have a separate supplement that is added to the pension accrued during his contribution. An identical mechanism from the UK to the USA.
In the United States, pensions are regulated by the Social Security Administration, a federal social insurance program. But not all employers make pension contributions available to their employees, and this is the reason why they turn to private pension funds.
What are pension funds?
The pension fund is a solution that allows you to invest and collect amounts of money that you pay during the years of work and in any case until you reach retirement age. The sum of contribution chosen is paid by the person concerned during his work with the same that will be paid only when the pension requirements have accrued.
It is important to understand how joining a pension fund does not mean giving up the traditional pension, but only having two different incomes. Over the years you can also decide to make changes to your private plan that can allow an early redemption or under special conditions.
What Americans do
In the US, over the last few years, there has been a contrast with the rest of the world with regard to the pension sector and immediate adhesions to Social Security. More and more Americans are choosing to stay in work beyond the retirement age of 65. Others, on the other hand, inform themselves to understand what is the real convenience of pension plans according to their needs – that is the way they find out what is a 401(k).
Each additional year of stay in the labour market translates into a higher allowance (by about 8%). In particular, according to data released by the BLS Labour Statistics Research Agency, around 20% of workers aged 65 and over are continuing their work.
Social Security is certainly an important reality, but alone it is not enough to guarantee an economically stable future with its 35 thousand dollars per year, a figure not enough to guarantee an adequate lifestyle for Americans. For this reason, in the United States, supplementary pension provision is an essential and indispensable tool that involves 48% of private employees.
What is the 401(k)?
The 401(k) turns out to be one of those pension plans that, again according to research released by BLS, allow Americans to define themselves as “adequately capitalized” and that is why it is among the most popular retirement programs. It is no coincidence that these represent about half of the assets invested by Americans in pension funds.
In 401(k) employers can help their employees save for retirement and workers can choose to deposit some of their earnings in an account so as not to pay income taxes until the money is then withdrawn at retirement age with the advantage that those funds, usually managed by the employer, they will never be subject to taxation before withdrawal. And that’s probably why it’s among Americans’ favourite private individual retirement plans.
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