Unemployment

During my working years I specialized in retirement planning and often times people were surprised when I pointed out that if they chose to work past age 62 they would be working for free. How does this happen?

Suppose you had worked thirty years for a company that had a pension plan that paid you 1.5% of your final salary for every year you worked or they would pay your 45% of your final salary. Assume that your salary was $50,000 so your pension would be $22,500 per year. First step is to determine what your net pay is if you continue to work.

Gross pay $50,000

Less standard deduction for two people $11,400

Less personal exemptions (2) $7,300

Taxable income $31,300

Federal tax $3,861

State tax (MN) $1,158

Less social security $3,825

Take home pay (net) $41,156



The pension will be income tax free and no social security withheld so it will net out at



Pension $22,500

Husband social security ($1,200/mo) $14,400

Wife social security (35% of husbands) $5,040

Take home pay (net) $41,940



Often times the cost of health insurance is not covered until age 65 when Medicare kicks in so I tell them if they like what they are doing and they feel good to keep on working but if they are burnt out they should retire and take a part time job doing something they like and earn enough to buy health insurance.



This is all leading up to people, who today, are collecting unemployment, which pays about one half of salary up to a maximum of about $500 per week. Assume you were making ten bucks an hour or $400 per week and you get laid off and start collecting $200 per week. While you are working, assuming you were a family you didn’t pay any income tax but you did pay social security tax so your take home pay was $369. If you go back to work your income will increase by $169 ($369 - $200) so you will be earning 169 divided by 40 or $4.22 per hour which is kind of depressing. If you have to pay a baby sitter you are better off not working.

The point here is that for low income people, those who make less than $25 per hour, the difference between working and collecting unemployment is not that great and since unemployment benefits now run for 99 weeks, it may be a while before these people get serious about looking for work and I guess you can’t really blame them.


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