RP - Social Security and Pensions Lesson

Social Security and Pensions

Introduction

Did you know that saving for retirement is, in a way, mandatory? You don’t HAVE to open an IRA or a 401K, but you have no choice but to contribute to Social Security. The Federal Insurance Contributions Act (FICA) requires a deduction of 6.2% of your income for Social Security. This amount is saved to an account that you can collect from when you retire. A nice added bonus is that your employer must ALSO contribute an amount that equals your contribution. Companies can offer pension plans as well. These are usually fully funded by the employer.

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Social Security Deductions

Social Security is deducted from your pre-tax income or gross pay. The amount deducted is 6.2% of your earnings. The amount of Social Security benefits you receive in retirement depends on your average earnings during your working years. Click through the following interactive to learn more and practice calculating contributions.  

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Pensions

Companies can offer their employees pension plans. These are retirement accounts that are fully funded by the employer. Click on the tabs to find out more about each type of pension plan. Be sure to take notes and practice along with the examples. 

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Comparing Pensions Practice

Help Claire make the best decision for her pension plan. She has worked for the same company for 25 years. Her last three years’ salaries were $58,000.00, $59,000.00, and $62,000.00. Which choice will give her the largest monthly pension payment? 

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