Focus on U.S. immigration and U.S. living strategies: A significant feature of retirement for Americans is self-retirement, where they rely on their hard work and savings for retirement funds. Many young people in their twenties allocate a certain percentage of their income to retirement savings accounts, and after decades of investment, they can accumulate a substantial retirement fund by the time they retire.
Self-retirement requires "cooking a small meal" after retirement.
Retirement is an issue that every society and individual must face. Although there are various concepts of retirement, such as government pensions, social pensions, and support from children, a fundamental concept for Americans is self-retirement. The starting point of self-retirement is to ensure that the quality of life in retirement does not differ significantly from that during working years, allowing individuals to enjoy a high standard of living in their later years. Under the concept of self-retirement, how individuals accumulate retirement funds becomes crucial. The U.S. government strongly supports personal retirement savings primarily through tax incentives, where all accumulated retirement funds are exempt from personal income tax until the designated withdrawal age. In American financial planning, how to accumulate retirement funds is an important aspect of family finance. As the saying goes, having money in hand means no worries in heart. Many people spend their lives working hard, and if they do not have enough retirement savings when they grow old, it can be a tragic situation.
The national pension provided by the U.S. government is about $1,000 per month, which barely meets basic living needs, but is far from sufficient to maintain a comfortable standard of living. If government social security is seen as a welfare-style communal pot, then the pension accumulated and invested through government incentives and corporate benefits is akin to a small meal. The quality of this small meal depends on the skill of the chef, which in this case is the individual. People can delay retirement and earn more to maintain their standard of living in old age, or they can rely on financial assets or real estate to expand their income sources after retirement. However, for many workers, accumulating a substantial retirement fund during their working years is more realistic, allowing a lifetime of effort to be rewarded in old age, truly achieving a peaceful retirement.
How to ensure sufficient retirement funds under the dual-track system.
The U.S. pension system operates on a dual-track basis, where government employees and public school staff receive a fixed monthly pension, while private sector employees primarily rely on 401K retirement plans. In this system, employers contribute a certain amount to the employees' retirement savings, and the funds in the 401K account become the employee's pension upon retirement. The retirement benefits for government employees are based on a comprehensive assessment of salary, years of service, and age, typically allowing employees to receive 60% to 80% of their working salary, with some exceeding 100%. The amount of retirement funds private sector employees have upon retirement depends on how much they have accumulated in their 401K accounts. Some individuals do well and have $1 million at retirement, while others may only have $80,000 or $100,000. Therefore, for most Americans, it is crucial to prepare adequately for retirement savings to maintain their lifestyle after retirement.
From the moment Americans start working, an essential aspect of financial planning is how to effectively accumulate retirement savings. Since most private companies offer 401K retirement savings plans, this allows workers to take advantage of these plans to effectively save for retirement. Additionally, various personal retirement savings plans can enjoy tax-exempt benefits, broadening the channels for the public to accumulate retirement funds. Another objective factor that allows Americans to accumulate retirement funds as a primary source of retirement income is the stability of the investment market and the diversity of investment options. With these comprehensive factors, an individual's retirement living conditions can be determined by their diligent work and effective family financial management, rather than solely relying on the government for retirement.
The dual-track pension system in China has become a significant issue of public backlash in retirement system reforms. Why has the dual-track system in the U.S. pension system been implemented for so long with relatively little social controversy? There are several reasons: first, government departments are relatively low-paying compared to private enterprises, especially high-tech talents who generally prefer not to work in government. Private enterprises offer many employee benefits, such as stock options and dividends, which government employees cannot access. Second, the retirement funds for government employees are operated through a system where both employees and employers contribute to the retirement fund, which naturally reduces public complaints. Third, since government salaries are low, government departments can only attract talent through daily benefits and retirement benefits. Despite these factors, receiving a fixed monthly pension upon retirement is indeed a good retirement method. In the past, private enterprises in the U.S. also adopted this method, but due to high costs, it gradually evolved into the current system centered around 401K retirement plans. In China, enterprises have not formed a complete retirement system similar to 401K, while the government employee retirement system is deeply entrenched and offers good benefits, making the public's call to abolish the dual-track retirement system understandable.
Saving for retirement versus relying on children for support in old age.
In the 401K retirement savings plan, since both employers and employees need to invest in the retirement savings plan, leveraging the employer's contributions will gradually increase the investment pool. The 401K retirement savings plan provided by companies can be seen as a benefit; if an employee contributes 5% of their income to savings, along with the company's 5% contribution, 10% of their monthly income can be saved. Many American companies match a certain percentage of the employee's contributions to the retirement savings plan, with some going as high as 40%. In the former case, if an employee contributes more to their retirement account, the employer's matching contribution will also increase, effectively allowing the employee to gain two returns for one investment. Besides the 401K savings plan, individuals can also establish personal retirement savings plans, such as IRAs. The greatest benefit of establishing a personal savings plan is that this contribution is exempt from personal income tax. For example, if an individual's income requires them to pay $2,000 in personal income tax at tax time, depositing $6,000 into an IRA retirement account means that this $6,000 is not subject to tax. Moreover, due to a decrease in income, the required personal income tax may drop to $1,000.
Comparing the attitudes and thoughts of the citizens of China and the U.S. regarding saving for retirement reveals that they are not significantly different, but there are considerable differences in specific practices. This disparity is closely related to the different investment environments, government policies, and cultural traditions of the two countries. Americans lack the concept of relying on children for support in old age; they place their retirement hopes on their hard work and savings. Therefore, from the beginning of their careers, they consider whether to establish a retirement fund account to prepare for retirement 40 years later. Although today's young people face the realities of repaying student loans and striving to buy homes at the start of their careers, an increasing number of young people are establishing retirement savings accounts from the outset and committing to investing for decades for their post-retirement lives.
It is often said that Americans have a low savings rate, with the metric being the amount in bank deposits, which does not align with American saving habits. Americans tend to keep savings in banks for emergencies rather than as a popular investment method. However, American retirement savings combine saving and investing. Chinese people are known worldwide for their ability to save, but their savings are often for their children's weddings or home purchases. Once their children are settled, the money that the elderly have painstakingly saved is often depleted, leaving them short on funds for their own retirement. From a financial perspective, while Chinese people may save substantial amounts, they often lack a systematic retirement savings plan, and the government and enterprises also lack comprehensive retirement savings plans and incentive policies for employees. Particularly, China's financial market remains unstable and has not formed a complete pension investment system.
In this context, the investment risks are significant. Even if a fixed amount is set aside each month for retirement investment, the long-term investment returns for the public carry considerable risk. Therefore, while the American approach to saving for retirement is a good concept and method, successful implementation requires many supporting measures.
