It comes from the retirement savings you’ve been putting away your whole life. That money has been accumulating interest over decades and you now have enough to live on. The government provides seniors with a few benefits, but it’s not enough to live on, so if you’re not saving money yourself, you will not retire.
From savings, obviously. Even putting away $50 a month starting when you are 20 year old and turn into $100,000 by the time you retire thanks to interest.
But in addition to that in the US retired people get social security payments.
This is generally not a ton of money I think the average is about $2000 a month and the max is about $4000 a month. (this amount changes every year, to account for inflation)
In a lower cost of living area that’s enough to live off of just fine, and definitely enough if you owe and paid off your house.
But if you live in a high cost of living area or are still renting you might have to keep working. i.e. don’t get to retire.
I’m sure other developed countries have similar systems (and knowing the US they are likely more generous, but I can’t say for sure)
In a lot of cultures it’s also expected for your kids to take care of you when you can no longer work.
Usually social security. Throughout your career you pay 6.2% of you wages into the system and your employer pays 6.2% of your wages into a system. When you retire, based on your age and how much you contributed in your top years, there is a formula to determine how much social security pays out to you each month.
It works as: i) a forced investment system, ii) an insurance system (you are paid until the end of your life regardless of how long you live) and iii) a backstop for the worst off people who may also have made poor choices.
You save. Put away a little bit to your piggy bank and hope it grows to be enough. As you increase skills from a lemonade stand to mowing grass, hopefully you get paid more and can save more.
You rely on government. Mommy and daddy (government) give you an allowance. It’s not much, but if you live frugal you might be able to survive. This, of course, assumes mom and dad don’t let your crazy uncle from South Africa steal all their money first
You rely on family. Like mommy and daddy (actual) take care of you now, you hope you have family that can take care of you – could be kids or grandkids perhaps.
No matter who you are, the money comes from you. You should be saving at least 15% of your income if you hope to retire, according to the standard rule of thumb. Admittedly, most people are not able to save this much, and most Americans fall short. But any amount of saving for your retirement is going to be beneficial, and compounds over your lifetime in substantial ways if you start early enough.
In the USA people rely on government assistance and benefits, such as social security or Medicare. Social security is something people pay into, so they are kind of “getting their money back.” Other benefits are largely respiratory tax funded.
Many just don’t retire, working until they die. About 1/3rd of the people over 65 in the USA are working today.
If you don’t have a private retirement fund, it comes from your pay.
It comes from your pay check; on each pay check there is small amount that goes to a collective retirement plan; when you retire you receive back some of they money as basic retirement fund.
It’s usually financed equally by the employee and the employer.
That’s what we do in Canada (and at least in Québec province).
Depending on your jurisdiction, your national government will have some form of pension plan. In Canada, it is the cleverly named Canada Pension Plan, and it is funded via payroll deductions.
Other than that, my retirement is going to be funded by my savings, as well as by cashing out the equity on our home (sell for market value, and move to a location where housing is cheaper, banking the difference).
Some countries have a supplemental payment plan for those people with insufficient retirement income, as well. In Canada, this is called the Old Age Supplement.
You need to save from every paycheck and every bonus. If your employer has a 401k, it is easy because money will be pulled from your check each week. If not, you need to put the money aside. People say shoot for 10%, but that is hard when you don’t make much (personal experience). Start with 5%. It builds quickly. Over 40 years, it adds up.
Social security will help, but it was never meant to cover all expenses. Don’t rely on it to.
There is no “low value worker”. The is only “low paid work”. That aside, how retirement works depends on the country you are in as old age security regulation differs by country. In many places, there is a public fund into which all employees pay in, and from which pensions are paid out. How much you get depends again on the regulation, but is typically/often related to length of contributions and other factors. Many places supplement this with other old age payments, that might or might not be related to age, income etc. then there’s other retirement that could be private and are not a general fund, but linked/owned directly to/by the individual. Those funds are invested and once you retire you live off the pot of money saved over the years. Some places also have employer guaranteed pensions, where depending again on how long you worked you are guaranteed a certain sum for a certain length of time.
You have not specified which country and system you’re referring to. In the US there is no national retirement fund, so basically your retirement is your own savings throughout your career that you either saved/invested for yourself or your union/private insurance did for you.
In other countries there are retirement funds that pay out people in retirement. These are fed partly by everyone’s income tax, so in a sense you’re getting back part of the money you were pretty much putting into that system through your entire life. The difference is that you don’t get the money you put in, you get an amount defined by law according to various parameters whether it’s more or less than what you actually put in. You’re basically guaranteed a retirement income, though that’s not always enough or fair. But at least unlike the US you don’t risk just running out and having nothing.
The way it’s supposed to work is that during your entire working life, you take a portion of your earnings and save it for retirement. In the last 40 years or so, this is most commonly done with a 401k or IRA. These are accounts where you can take a portion of your earnings (before tax) and put them into stocks/bonds/etc. the idea is that if you have your money on the market, you’ll earn more than just having it in an interest-bearing account, and can outpace inflation. This way, over the course of your career, you eventually have enough saved up to live off of and don’t need to work anymore.
The problem is that for low-wage workers, you’re not earning enough to be able to put some aside for the future. So if you’re just getting by day-to-day, there’s nothing left over to save.
Social security is an incredibly important component of retirement. Your entire working life, you pay into social security, so that after age (it used to be 55, but it has gone up) you get a monthly check from the government. So, in a certain respect, it’s like a government-operated savings account, however the monthly payment is often not enough to live off of by itself, especially if you were a low wage worker.
So, to answer your question, low-wage workers and working class people often can’t retire, and have to work into much later years than people who had higher incomes. When they get to the point that they can’t work anymore, social security can help, but is often not enough
Social Security pays out a higher percentage of your lifetime earnings if you made lower amounts over your working life.
Payment formula at full retirement age
>Average Indexed Monthly Earnings (AIME): This is the first step, calculated by taking the average of your highest 35 years of indexed earnings (adjusted for inflation) and dividing by 12 (to get a monthly amount).
>
>90% of the first $1,226: of your AIME.
>
>32% of the portion of your AIME between $1,226 and $7,391 .
>
>15% of the portion of your AIME above $7,391 .
Typically, a person will work a job that matches some 401k contributions. My job matches 6%, so if I choose to deduct 6% of each check, my employer will match that. You can choose to add more or less if you want. There is a cap though. Some employers match very differently, and some not at all. This is considered a good way to save for retirement because the money is automatically deducted from your account so you don’t feel tempted to spend it. It’s also free money if your employer matches. I sometimes see it as an extra 6% a year in pay.
Some jobs offer pensions for employees. You will get a certain amount a month when you retire based on how many years you worked, your pay, or possibly your position. Not all pensions are the same. The US post office apparently has a great pension fund. I’ve known people that call post office jobs “retirement jobs” because people that work there typically want to stay until retirement.
Social security is also available to Americans. They get a certain amount based on how much they contributed. If you have a spouse that passes, you can choose to receive their benefits instead if they are better. This is a big benefit of marriage in the US.
One of the biggest investments you can make to help retirement is to purchase your home. Ideally you have this paid off before you retire, but some people still have a few years of mortgage payments to make. Having a mortgage payment is still better than rent because of the fixed payment. Once your mortgage is paid off, your monthly expenses should reduce significantly.
The goal is to be in your 60s with a price controlled/ affordable home, pension/ 401k to deduct from, and social security benefits.
I’d like to add that a lot of people downgrade their lifestyle when they retire. They sell their homes and move to cheaper ones. This is a huge benefit to buying a home because you can use a lot of the equity to fund your retirement. It’s common for a person to sell their $400k house and buy a $200k house while pocketing most of the other $200k.
Comments
It comes from the retirement savings you’ve been putting away your whole life. That money has been accumulating interest over decades and you now have enough to live on. The government provides seniors with a few benefits, but it’s not enough to live on, so if you’re not saving money yourself, you will not retire.
From savings, obviously. Even putting away $50 a month starting when you are 20 year old and turn into $100,000 by the time you retire thanks to interest.
But in addition to that in the US retired people get social security payments.
This is generally not a ton of money I think the average is about $2000 a month and the max is about $4000 a month. (this amount changes every year, to account for inflation)
In a lower cost of living area that’s enough to live off of just fine, and definitely enough if you owe and paid off your house.
But if you live in a high cost of living area or are still renting you might have to keep working. i.e. don’t get to retire.
I’m sure other developed countries have similar systems (and knowing the US they are likely more generous, but I can’t say for sure)
In a lot of cultures it’s also expected for your kids to take care of you when you can no longer work.
It comes from you saving some money from every paycheck. If you dont save, then there will be no money for retirement.
Usually social security. Throughout your career you pay 6.2% of you wages into the system and your employer pays 6.2% of your wages into a system. When you retire, based on your age and how much you contributed in your top years, there is a formula to determine how much social security pays out to you each month.
It works as: i) a forced investment system, ii) an insurance system (you are paid until the end of your life regardless of how long you live) and iii) a backstop for the worst off people who may also have made poor choices.
You have a few options:
You save. Put away a little bit to your piggy bank and hope it grows to be enough. As you increase skills from a lemonade stand to mowing grass, hopefully you get paid more and can save more.
You rely on government. Mommy and daddy (government) give you an allowance. It’s not much, but if you live frugal you might be able to survive. This, of course, assumes mom and dad don’t let your crazy uncle from South Africa steal all their money first
You rely on family. Like mommy and daddy (actual) take care of you now, you hope you have family that can take care of you – could be kids or grandkids perhaps.
No matter who you are, the money comes from you. You should be saving at least 15% of your income if you hope to retire, according to the standard rule of thumb. Admittedly, most people are not able to save this much, and most Americans fall short. But any amount of saving for your retirement is going to be beneficial, and compounds over your lifetime in substantial ways if you start early enough.
In the USA people rely on government assistance and benefits, such as social security or Medicare. Social security is something people pay into, so they are kind of “getting their money back.” Other benefits are largely respiratory tax funded.
Many just don’t retire, working until they die. About 1/3rd of the people over 65 in the USA are working today.
Depending where you are in the world…
If you don’t have a private retirement fund, it comes from your pay.
It comes from your pay check; on each pay check there is small amount that goes to a collective retirement plan; when you retire you receive back some of they money as basic retirement fund.
It’s usually financed equally by the employee and the employer.
That’s what we do in Canada (and at least in Québec province).
Depending on your jurisdiction, your national government will have some form of pension plan. In Canada, it is the cleverly named Canada Pension Plan, and it is funded via payroll deductions.
Other than that, my retirement is going to be funded by my savings, as well as by cashing out the equity on our home (sell for market value, and move to a location where housing is cheaper, banking the difference).
Some countries have a supplemental payment plan for those people with insufficient retirement income, as well. In Canada, this is called the Old Age Supplement.
Answer: You need to save. Period. Dot. End.
You need to save from every paycheck and every bonus. If your employer has a 401k, it is easy because money will be pulled from your check each week. If not, you need to put the money aside. People say shoot for 10%, but that is hard when you don’t make much (personal experience). Start with 5%. It builds quickly. Over 40 years, it adds up.
Social security will help, but it was never meant to cover all expenses. Don’t rely on it to.
There is no “low value worker”. The is only “low paid work”. That aside, how retirement works depends on the country you are in as old age security regulation differs by country. In many places, there is a public fund into which all employees pay in, and from which pensions are paid out. How much you get depends again on the regulation, but is typically/often related to length of contributions and other factors. Many places supplement this with other old age payments, that might or might not be related to age, income etc. then there’s other retirement that could be private and are not a general fund, but linked/owned directly to/by the individual. Those funds are invested and once you retire you live off the pot of money saved over the years. Some places also have employer guaranteed pensions, where depending again on how long you worked you are guaranteed a certain sum for a certain length of time.
You have not specified which country and system you’re referring to. In the US there is no national retirement fund, so basically your retirement is your own savings throughout your career that you either saved/invested for yourself or your union/private insurance did for you.
In other countries there are retirement funds that pay out people in retirement. These are fed partly by everyone’s income tax, so in a sense you’re getting back part of the money you were pretty much putting into that system through your entire life. The difference is that you don’t get the money you put in, you get an amount defined by law according to various parameters whether it’s more or less than what you actually put in. You’re basically guaranteed a retirement income, though that’s not always enough or fair. But at least unlike the US you don’t risk just running out and having nothing.
The way it’s supposed to work is that during your entire working life, you take a portion of your earnings and save it for retirement. In the last 40 years or so, this is most commonly done with a 401k or IRA. These are accounts where you can take a portion of your earnings (before tax) and put them into stocks/bonds/etc. the idea is that if you have your money on the market, you’ll earn more than just having it in an interest-bearing account, and can outpace inflation. This way, over the course of your career, you eventually have enough saved up to live off of and don’t need to work anymore.
The problem is that for low-wage workers, you’re not earning enough to be able to put some aside for the future. So if you’re just getting by day-to-day, there’s nothing left over to save.
Social security is an incredibly important component of retirement. Your entire working life, you pay into social security, so that after age (it used to be 55, but it has gone up) you get a monthly check from the government. So, in a certain respect, it’s like a government-operated savings account, however the monthly payment is often not enough to live off of by itself, especially if you were a low wage worker.
So, to answer your question, low-wage workers and working class people often can’t retire, and have to work into much later years than people who had higher incomes. When they get to the point that they can’t work anymore, social security can help, but is often not enough
It’s a complex system, but essentially, you save money during your working years to fund your life after you stop working.
Social Security pays out a higher percentage of your lifetime earnings if you made lower amounts over your working life.
Payment formula at full retirement age
>Average Indexed Monthly Earnings (AIME): This is the first step, calculated by taking the average of your highest 35 years of indexed earnings (adjusted for inflation) and dividing by 12 (to get a monthly amount).
>
>90% of the first $1,226: of your AIME.
>
>32% of the portion of your AIME between $1,226 and $7,391 .
>
>15% of the portion of your AIME above $7,391 .
Typically, a person will work a job that matches some 401k contributions. My job matches 6%, so if I choose to deduct 6% of each check, my employer will match that. You can choose to add more or less if you want. There is a cap though. Some employers match very differently, and some not at all. This is considered a good way to save for retirement because the money is automatically deducted from your account so you don’t feel tempted to spend it. It’s also free money if your employer matches. I sometimes see it as an extra 6% a year in pay.
Some jobs offer pensions for employees. You will get a certain amount a month when you retire based on how many years you worked, your pay, or possibly your position. Not all pensions are the same. The US post office apparently has a great pension fund. I’ve known people that call post office jobs “retirement jobs” because people that work there typically want to stay until retirement.
Social security is also available to Americans. They get a certain amount based on how much they contributed. If you have a spouse that passes, you can choose to receive their benefits instead if they are better. This is a big benefit of marriage in the US.
One of the biggest investments you can make to help retirement is to purchase your home. Ideally you have this paid off before you retire, but some people still have a few years of mortgage payments to make. Having a mortgage payment is still better than rent because of the fixed payment. Once your mortgage is paid off, your monthly expenses should reduce significantly.
The goal is to be in your 60s with a price controlled/ affordable home, pension/ 401k to deduct from, and social security benefits.
I’d like to add that a lot of people downgrade their lifestyle when they retire. They sell their homes and move to cheaper ones. This is a huge benefit to buying a home because you can use a lot of the equity to fund your retirement. It’s common for a person to sell their $400k house and buy a $200k house while pocketing most of the other $200k.