When was the last time you looked at your paystub? Yes, I realize that there is no stub attached to your nonexistent paper paycheck, but that doesn’t mean it isn’t important. It is probably available online, or you can ask your employer for the details. Physical paystubs are antiquated, so most people fail to examine details of their “hidden expenses,” including paycheck withholding. Electronic tax withholding and benefits contributions are huge.
Discovering exactly what is being paid out prior to receiving “take-home pay” is important. Withheld amounts paid out to taxing authorities, insurance carriers, and company-sponsored retirement plans, all add to what we call your Invisible Cost of Living. These costs tend to rise stealthily over time.
Far too many Americans have no idea exactly how much they actually earn in a pay period, or over a year. When asked, a common response is, “I take home “X” dollars per pay period.” That does not address the question. Similarly, many people do not even know their gross monthly Social Security benefit, as they look simply at their electronically deposited amount. Opening an online account at socialsecurity.gov allows a recipient to see how much is being withheld for Medicare Parts B and D (including possible IRMAA surcharges on higher-income Americans), and Federal Income Taxes, if any.
For the dwindling group of Americans accruing Traditional Pension benefits, they should comprehend the economic value of their employer's pension contributions. Understanding your total cost of living, including the invisible portion, is vital for everyone, especially job hunters, as well as anyone considering “gig work.”
Preparing for retirement and beyond is a years-long process, and therefore cannot be hurried. Like all insurance plans, Social Security and Medicare require minimum payments (essentially insurance premiums) to be made into these Plans. These programs require 40 or more calendar quarter contributions. Lifetime credited earnings by individuals are available on the Social Security website, and should be checked occasionally.
Failure to understand your true cost of living, including the invisible portion, can result in disastrously underestimating retirement needs. Today, many visible components of inflation are “in your face” at the gas pump, grocery store, and in the stack of unpaid bills on your desk at home. Invisible components are inflating as well, and changes in your Total Cost of Living must be understood in order to plan for eventual Financial Independence.
Like it or not, many people will be working longer than anticipated.Van Wie Financial is fee-only. For a reason.
