Retirement Plans for Undocumented Immigrants: Your Options
Planning for retirement is one of the most important aspects of personal finance. As our life expectancies continue to grow, we may face decades of life after deciding to stop working.
For many in the US. Social Security benefits are a big part of their retirement plan. The average retired worker receives $1,669.44 per month, which is $20,033.28 annually. As the average cost of living for a single person in the US is $3,189 per month, which is $38,266 per year, Social Security benefits can go a long way towards making ends meet during retirement.
We’ll discuss how much immigrants pay in taxes, if immigrants are eligible to receive Social Security benefits, and what options they have for retirement planning.
Immigrants and taxes
Immigrants, legal and undocumented, pay taxes to the US government just as natural-born citizens do, so asking if illegal immigrants get Social Security benefits is a fair question.
In 2019, immigrants in the US paid more than $330.7 billion in federal income taxes and more than $492 billion in total taxes, including state, local, and sales taxes. And through payroll taxes, a significant portion of that money goes to Social Security and Medicare, which provides health insurance to those over age 65, $165.9 billion and $45.1 billion, respectively.
In fact, if all the undocumented immigrants were deported from the US today, next year’s Social Security trust funds would have about $13 billion less for payouts.
Do immigrants get Social Security?
Social Security for undocumented immigrants is not available despite having paid into the system. While undocumented immigrants pay taxes using an ITIN, a Social Security number is required to collect Social Security benefits and other government services, and undocumented immigrants cannot get a Social Security number.
Retirement plans for undocumented immigrants
Illegal immigrants cannot receive Social Security benefits, but that doesn’t mean they can’t plan and save for retirement. That means investing.
While having a bank account is an important part of US personal finance, there are better retirement savings strategies than just putting money into a checking or savings account. The average interest on a savings account is under 1%, and inflation erodes the buying power of our money year after year. A dollar today buys less than a dollar in one, five, ten, or thirty years from now.
But investing helps our money grow faster. And immigrants can invest in the US regardless of their legal status!
Retirement investing accounts
While there are several investing accounts specific for retirement investing, there are three that are the most common.
401(k): These are employer-sponsored, tax-advantaged investment accounts designed to save for retirement. Investors are offered a choice of funds, “baskets” of assets that help create a diversified portfolio that helps insulate your investments from risk. The money is automatically deducted from an employee’s paycheck and invested.
Most 401(k) plans are tax-deferred. You don’t pay taxes on the money you contribute, any gains, dividends, or interest earned. Taxes are paid when you withdraw from the account after age 59 ½.
Roth IRA (Individual Retirement Account): Post-tax dollars are contributed to the account, and the money inside grows tax-free. You can start making tax and penalty-free withdrawals after age 59 ½.
Traditional IRA: Pre-tax dollars are contributed to the account, and the money grows tax-deferred and taxed upon withdrawal after age 59 ½.
Unlike 401(k)s, IRAs allow investors to invest in a wide range of asset classes, including individual stocks, bonds, mutual funds, and index funds.
Retirement is years away
While it’s never too early to start investing for retirement, there are many other aspects of US personal finance to learn about first. That’s why Upwardli was created. We help newly arrived immigrants learn about American personal finance, and we can help you build your credit score, one of the most important things you can do when starting your new life.
