Introduction
There is a developed Social Security System in the US today, which includes funds to support mature people, people with disabilities, and others in need. A person has the opportunity to secure financial resources for oneself to use at an age when one cannot work. In the United States, there are systems that allow not only to save money but also to increase it at the expense of the interest rate. Small deposits from everyday expenses in a few decades can turn into a significant amount. Thereby, the aim of the paper is to analyze the retirement plan considering the option of automatic daily deduction from the individual’s salary.
Retirement Funds
Retirement funds had their roots in distant history when money resources were paid from the country’s treasury for people in need. Today it is a well-developed system that allows mature people, the disabled, or others in need to receive financial resources. Usually, an individual’s payments depend on the individual’s lifetime contributions (OECD, 2018). In other words, the greater the person’s contributions to the retirement fund, the greater the salary in the future. This can be in the form of monthly payments or in opening a special benefit account. In the latter, the interest rate is also taken into account, due to which the amount can be increased.
In the US, there is also the option of opening a special retirement personal account. In this case, the individual can determine the number of deductions to the account by oneself and take advantage of the fixed interest rate (Barry, 2018). This is advantageous because even small contributions can form a significant amount, considering the interest rate. However, it will take many years to form a large amount, usually 20-40 years. Thus, if one starts thinking about social payments from an early age, one has the opportunity to provide a significant amount in the future. The person has the possibility to choose the interest rate option, depending on one’s aims. The interests can be higher, however, one will be able to formulate a significant sum faster, and taxes would be higher. In case of a lower interest rate, it will take more time to accumulate finances, and taxes would be lower.
Further, there is an option to choose the most suitable type of retirement. Thus, the most popular types of pension are the state pension and the employer’s benefit. In the last option, one can conclude a special agreement with the employer and choose the amount of deduction from the salary. This is a convenient option since one can initially plan one’s budget, taking into account the deduction of resources for the retirement account. In this case, one does not have to deal with the determination of certain amounts on his own, which is often difficult. In addition, one can take advantage of the interest rate in the future and be provided with a significant amount of savings. The person may determine the interest rate and taxes, depending on one’s goals. In case the individual plans to accumulate finances for several decades, one should choose a lower interest rate as taxes would be lower.
The Automated-Deduction Retirement Plan
Thereby, to analyze my retirement options for me, it is necessary to develop a retirement plan. In the current case, I will elaborate on the plan considering the daily payroll deduction for the retirement account. Thus, the deducted sum will be 15$ per day, which formulates the regular deposit amount; thereby, it will constitute the 450$ monthly deduction. Supposedly, I start the retirement plan for 40 years, which is 480 months to save. Further, it is appropriate to consider the average annual interest rate of 8 percent. Finally, I will not deal with one’s income tax rate since taxes would be deducted after beginning the withdrawal.
Thus, after 40 years of saving 15$ per day, considering an 8 percent annual interest rate, I will have $1,570,953 (Adirondack Bank, 2022). It will provide a comfortable existing at the retirement age, with the possibility to travel and self-development. Therefore, one may notice that a simple daily deduction may result in a significant sum in the future. $15 is a tiny amount that many people spend on things that are not essential. It is enough to give up coffee, daily taxi rides, going to a bar every weekend, or even giving up cigarettes, which in the future can bring a million.
Conclusion
To conclude, it is worth mentioning that an employer-sponsored retirement plan is more beneficial than a non-sponsored one. It is formulated by the convenience of the automatically deducted resources, which makes the economy easier. It will help to achieve my goal more effectively since there is a possibility to maintain financial discipline. In other words, one will have to plan one’s budget considering the daily or monthly deductions. In this case, it is not necessary to decide whether one will set aside this sum today or not. Finally, I would mention that with an automatic deduction, my goal is achievable. However, I cannot be sure that it will be easy without the automated deduction since it will be challenging to refuse some daily habits.
References
Adirondack Bank. (2022). Savings goal calculator. Web.
Barry, M. P. (2018). Retirement savings policy: Past, present, and future. Walter de Gruyter GmbH & Co KG.
OECD. (2018). Financial incentives and retirement savings. OECD Publishing.