The retirement of immigrants and how to break the cycle of poverty

Immigrants families in the United States or any other country do so looking for the dream of a better life for themselves and their families.
Fundamentally, immigrants learn that there are two variables that everyone repeats for success in the United States:

1. Get your papers in order; It is there where many practically become immigration lawyers, and all the types of existing Visas are known. Parole conditions, asylum and everything related to the processes of immigration paperwork.
2. Everyone knows that they come to work hard and that in this country they work hard and that the formula is work and more work.

But unfortunately, many forget or are unaware that Personal Finances in the United States are very different from those in their country of origin; especially if you come from a Latin American country.

Not only finances are different but you must change your way of thinking and your paradigms so that you can really succeed in this country; knowing that there are two big risks: credit card debts and not knowing how to save for your retirement.

The story of inherited poverty for immigrants

So let’s review the path followed by the majority of immigrants in the USA. And why should this situation continue inexorably, that family will continue to be immersed in a circle of poverty.

By getting your work permit and Social Security number, people are able to start having better jobs; and in this way earn a little more, but without knowing it or rather without wanting to realize it. The more you earn, the more commitments you will have and the more you will spend.

This situation makes you continue working more and more to earn more and continue with your dream, which is to improve the quality of life. Some, after suffering a financial mishap or emergency, realize that they must save and that
the solution is not credit cards; less now than in the year 2023 they have reached their highest value of interest rates, reaching an average of 20%. But for many immigrants these rates can be much higher; because they may not understand in detail how the Credit Score and have never requested a Credit Report.

Credits: Magisto

So those who start saving simply do so in a bank account, just as they did in their country of origin. Leaving out an important factor that we are seeing during 2022 and so far in 2023; the highest inflation of the last 40 years in the USA.

Of course there is no guessing what happens to the bank account balance; earning a much lower rate than inflation. What makes the money in the bank lose the battle against inflation over time.

Immigrants continue this behavior

People continue this behavior and add new debts and commitments; Like the house mortgage, the car lease, and then the student loan to help your kids go to college.

Years go by and you feel that you have achieved it, you obtained a better quality of life for you and your family; but, after the weight of time falls, you felt that you were going to be able to work forever. A study by the Employee Benefits Research Institute (EBRI),  indicates that half of the retirees had to retire earlier than they wanted; either due to disability or illness.

That’s where everything changes and you stop producing income; you think that social security retirement will serve you and this benefit has always been seen. It was like a complement to the retirement but not like the salvation of the retirement.

The average American will receive an average Social Security check of about $2.484  a month. While immigrants have not contributed for 35 years, which takes into account the formula used to determine this amount; the amount to be
received will be much less.

According to a study conducted by Goldman Sachs, 75% of retirees in the United States do not have enough income; to maintain 70% of the expense they had before retiring.

So the cycle of poverty begins, you have to depend on your children to help support you; and that prevents them from building their own retirement plan. On the other hand, due to the type of job their family had, these children do not know how a 401K plan works; nor could they tell their parents that they should have opened an Individual Retirement Account (I.R.A.).

Credits: Magisto

According to a study conducted by Goldman Sachs, 75% of retirees in the United States do not have enough income; to maintain 70% of the expense they had before retiring.

So the cycle of poverty begins, you have to depend on your children to help support you; and that prevents them from building their own retirement plan. On the other hand, due to the type of job their family had, these children do not know how a 401K plan works; nor could they tell their parents that they should have opened an Individual Retirement Account (I.R.A.).

The path to break the cycle of poverty among immigrants

Of course, there are many things that this family could have done better, including learning about personal finances and knowing the importance of consulting with a Certified Financial Planning. 

Many think that these services are only for millionaires and do not know that these professionals also work as an accountant or lawyer with an amount per hour of consultation and that

But there is one that should be asolution that is even simpler than these and is based on knowing that in the
United States if the government tells you it will give you a benefit so that you can save for your retirement, allowing the result of your investments to grow without having to pay taxes, while growing up.

This being a marvel that should not be left out, so it is essential that you know what Individual Retirement Accounts o IRAs.

Credits: Magisto

Seen in a very simple way, it is as if you had an account specially made for saving and instead of only depositing money, you can also buy investments such as shares or bonds of companies or the government. That money is going to produce a return over time and Uncle Sam is going to allow it to grow without deducting interest.

Individual IRA retirement accounts come in two varieties: Traditional IRA or Roth IRA.

What is a Traditional IRA (Traditional – Individual Retirement Account)?:

It is an account made especially for you to save for your retirement, having as fundamental characteristics: The contributions you make to this retirement account, you could reduce them from your tax and the return that is produced by investing this money grows tax-free.

Now, when you want to withdraw your money there, you will have to pay taxes, since the amounts you withdraw will be considered as income for you. If you make withdrawals before the age of 59 and a half, you will have to pay an additional 10% penalty.

What is a ROTH IRA (ROTH – Individual Retirement Account)?

Like the Traditional IRA, the ROTH IRA account is also used to save for your retirement, it has the same benefit of not having to pay taxes on the income that is produced.

The big difference is that the money you contribute will not be deductible from your tax, but it has the advantage that when you need to withdraw your money you will not pay taxes on the capital you invested and when you meet certain conditions neither on the performance (which you are over the age of 59 1/2 and the ROTH IRA has been opened 5 years ago).

As we see in this case, your capital is free of commissions or taxes and the return does have some conditions to meet.

Of course, being something so good that it allows your money to grow faster in time, Uncle Sam is not going to let you contribute all the money you want, since there is little good.

How much can I contribute to an Individual Retirement Account IRA?

The amounts are adjusted every year but for the year 2023, you can contribute about $6,500 and if you are 50 years of age or older you can contribute about $7,500. These amounts vary each year, so we recommend you visit the IRS page at this link.

What is the best methodology I can use to save in an Individual Retirement Account – IRA?

As we talked about before, with all the day-to-day expenses, it becomes very complex and implies a great show of discipline to be able to save an amount each year and remember to contribute it to a retirement account.

So it is much easier to automate this process and ask your bank to automatically make contributions for you to your IRA account and that way you do not forget and go little by little.

In the same way, it is very important that you do not forget to invest that money because just leaving it in the IRA account will not earn any interest. It is there where we always suggest leaning on an Investment Advisor or a Certified Financial Planner so that they can help you with this.

Credits: Magisto

We hope this information will help you learn a little more about this wonderful instrument, so that you can save time searching, create your own financial independence, and give your children one of the best gifts you can give them, which is allowing them to they continue to grow strong in their finances and create assets for a better tomorrow.

An article titled “Your Children Are Your Retirement Plan” was recently published in the New York Times, which reminds me of one of the biggest fears that many of us parents can have, which is being a financial burden on our children and really There is no better gift that you can give your children than to be financially independent and that they can reap for their own future.