# How to Calculate Percentages From Checks for Retirement

by Linda Richard

Retirement planning starts with the first dollar you earn and continues past retirement. Federal Insurance Contributions Act taxes cover Social Security and Medicare, and your employer withholds these taxes from your wages. You may have other retirement savings, such as a 401k or 403b plan, through your employer. In addition, you may contribute to an individual retirement account or a Roth IRA. All of these strategies are designed to provide you with an income stream when you retire. According to U.S. News & World Report, 15 percent of your salary is a reasonable goal for retirement savings.

1. Establish current figures for FICA taxes. The tax for Social Security is 4.2 percent of your wages for 2011 and may return to 6.2 percent for 2012. Your Medicare portion of FICA is 1.45 percent. Your contribution for both totals 5.65 in 2011 and may return to 7.65 in 2012. Multiply .0565 by your gross monthly income to determine your FICA contribution for the month. Your gross monthly income is the total before taxes. If you earn \$2,500 a month, your FICA contribution as an employee is \$141.25 based on 5.65 percent. That figure is \$191.25 at 7.65 percent. Your employer contributes 7.65 percent to match your contribution and does not receive the 2-percent break that employees receive in 2011. If you are self-employed, you are both employer and employee, so your total contribution is 13.3 percent of your income -- 7.65 plus 5.65. You receive an adjustment for half of your self-employment tax on your federal income tax return each year if you are self-employed.

2. Multiply your 401k contribution at the percentage you select with your employer. Many employees start with 2 percent and increase the percentage to 10 percent over a course of years. A contribution of 2 percent on \$2,500 a month is \$50, and 10 percent is \$250. If your employer matches your 401k contribution, you accumulate retirement savings much faster than you can do on your own. You cannot accumulate more than \$16,500 a year in 2011 with combined contributions in a traditional IRA and a Roth IRA.

3. Estimate your 403b contribution by multiplying your monthly income by the percentage you choose to contribute. A 2-percent contribution is an additional \$50 a month on a salary of \$2,500. Your employer may not match your 403b contribution, but this works as a pretax savings account. Pretax retirement accounts give you greater savings over the years but you pay taxes when you withdraw the money. Pay taxes on Roth accounts when you contribute and receive the original funds tax-free when you retire.

#### Tip

• Create a diversified portfolio of investments and maintain these over a long period of time to maximize your retirement income.

#### Warning

• Social Security will not provide the income you need for retirement. The Social Security Administration estimates that you'll need about 80 percent of your pre-retirement income, and Social Security provides about half of what you need. You will require additional income to match your Social Security income each month you live during retirement.

### Items you will need

• Calculator

#### About the Author

Linda Richard has been a legal writer and antiques appraiser for more than 25 years, and has been writing online for more than 12 years. Richard holds a bachelor's degree in English and business administration. She has operated a small business for more than 20 years. She and her husband enjoy remodeling old houses and are currently working on a 1970s home.

#### Photo Credits

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