Payroll taxes
Receiving a paycheck every month and knowing you can rely on a fixed income is great. What’s not so great is that you have to pay all those payroll taxes, also known as FICA (Federal Insurance Contributions Act) taxes from each paycheck. These are a combination of a 6.2% Social Security tax and a 1.45% Medicare tax imposed by the IRS to all employees and employers, as contributions for the future Social Security benefits and Medicare services you will be receiving in retirement.
It’s even worse if you’re self-employed because you will be the only one paying the total 15.3 percent (7.65% as an employee, 7.65% as the employer). If you’re longer in the workforce, you don’t have to pay these FICA taxes anymore. Simple, right?
Check out these 26 States That Do Not Tax Your Social Security Benefits. Do you live in any of them?
Retirement contributions
Millions of American workers try to scrimp and save for their golden years, either by investing in stocks, bonds or putting their money into 401(k)s or individual retirement accounts (IRAs). However, once you retire and you no longer receive your monthly paychecks, you can start enjoying the advantages of being economical and saving for the future.
You will finally be able to use the money from your retirement account and enjoy a comfortable retirement instead of desperately making contributions to those accounts. This means you will no longer be required to make annual contributions of up to $19,600 to your 401(k) or $6,000 to your IRA. Not to mention you’ll be off the hook with regard to the catch-up contributions that people 50+ can make to increase their retirement accounts.
