Choosing the right time to start collecting Social Securityretirement is a big deal in the United States. Once a senior starts collecting Social Security, his or her life changes completely. In addition, there are a number of financial differences. The average Social Security pension is much less than a worker’s salary. That is why it is always a good idea to have an extra source of income. In this case, we are talking about the 401(k) pension plan. While it’s true that getting a good 401(k) plan is a long time in advance, it’s worth it in the end.
But there is one problem regarding the 401(k) plan that Social Security retirees are concerned about. That problem is related to taxes. Considering the threshold of money we can earn from the pension before we start paying taxes, it may be wise to get a good handle on spending. However, there is good news with the combination of 401(k) plan and Social Security pension. If you collect both of these monthly incomes, you won’t have to pay any extra taxes.
The reason we don’t pay taxes with the 401(k) during retirement
It’s very easy to understand why we don’t pay 401(k) taxes when we are collecting a Social Security retirement benefit. The moment we start the 401(k) savings plan we are already paying taxes. So the truth is not that we don’t pay taxes, but that we have already paid them beforehand.
So when we cash out our 401(k) money every month we don’t have to pay any extra. So there is a good reason to set up such a plan. It will help us in a huge way to pay taxes earlier, so our retirement will be more comfortable and easier.
Don’t rely on Social Security as a source of income
Relying on the Social Security pension as the only source of income is one of the worst options for retirees. Although there is the possibility of getting a benefit of $4,194 per month, this is far from reality. It is common for the benefit to be much lower.
That’s why having a source of extra income, whether it’s a 401(k) retirement plan or personal investments that give us money every month is a good idea. Otherwise, we could be in financial trouble in our golden years.
There is also the option of selling everything you don’t need, moving to a cheaper apartment or even using public transportation instead of owning a car. Any financial help is welcome to better spend our retirement years.