Social Security Tax Holiday For Retirees
Most retirees with 401Ks have had a good 2010
, but there are other things you can do to increase your chances at retirement security with other savings venues like taking advantage of the Social Security tax holiday is just one of these moves. The payroll tax break implemented by Social Security can be especially beneficial to retirees who do not have a stable nest egg, and need all the extra help they can get, as it can significantly boost their personal savings for retirement.
The onset of the year 2011 will allow many American workers to receive a bump-up of 2% to their monthly Social Security checks, in no small part due to legislation recently approved by President Obama. Part of the legislation, the Tax Relief, Unemployment Insurance Re-authorization, and Job Creation Act of 2010 will give program participants a tax holiday, which effectively lowers the rate of payroll taxes by two percentage points (to 4.2% from 6.2%) for earnings of up to $106,800. This lower rate can add up to a considerable amount, especially if calculated per year.
Senior vice president Greg Burrows, of the Retirement and Investor Services department of the Principal Financial Group, says that what workers do with the extra 2% per month could mean the difference between a stable nest egg and an inadequate one, or one that is simply adequate and another that can give the worker surplus cash. For workers who still have decades before retiring, this is good news.
Assume that a worker makes $50,000 annually, and places the extra 2% per month into his or her 401K. This additional deposit can increase the weekly 401K contribution by a seemingly meager $19, but can grow beyond $16,000 around three decades after if it yields an annual return of eight percent.
If you can afford to do so, put a portion of the 2% tax break or the whole amount into a 401K, or alternatively, a 403B retirement account. This comparatively tiny amount, as illustrated above, can allow you to save anywhere from 11% to 15% of your monthly salary. Burrows also states that the average worker who participates in retirement savings plans should save around that percentage range (plus the matching employer contributions) throughout his or her career to accumulate enough for adequate retirement funds. Retirees aged 50 and up may also use the extra 2% for catch-up contributions if they have not maxed out contributions to other retirement plans yet.
by: Katherine Smith
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