By the Social Security Administration's own admission, Social Security was never intended to be your only source of income upon retirement. Here is a quote from SSA.com:
"Achieving a secure, comfortable retirement is much easier when you plan your finances. Most financial planners recommend you prepare for the future with a combination of Social Security, private pensions and personal savings."
If you earn just $30,000 per year you will pay approximately $3800 into social security each year. You won't see all of this on your pay stub because your employer matches your withholding. Actually, this is money your employer could pay you if there were no Social Security.
When you consider that $3800 paid in to Social Security annually and the fact that you will work under their system for approximately 40 to 45 years, your total investment is about $150,000.
What do you get for that $150,000 investment? If you live long enough you may get your money back. What happens to the money if you die early? It's gone unless you have a surviving spouse or minor children and they will get a whopping $255 to bury you.
Of course there are some benefits like disability, and survivor benefits but your monthly benefit, no matter when you draw it, it will still put you below the poverty level.
Now, let's take a 401k program where you contribute 6% of your pay and your employer matches that 6%. Using the same $30,000 earnings for 45 years with a very conservative estimate of a 5% return, you would have over $600,000 in your investment account. That's your money. No matter when you die that will go to your beneficiaries.
One myth about Social Security is that you are paying into an account with your name on it. The fact is that the money you are paying now is being paid to the people that are currently drawing Social Security benefits. What's left over after paying the current beneficiaries goes into the federal government's general revenue fund to be spent as they see fit.
The bottom line is that you will be depending on your kids to pay your social security benefits. It is estimated that by 2018, it will take 2 taxpayers working to pay the benefits for one Social Security recipient. It's no wonder so many of our young people don't believe they will ever draw any benefits.
Now, with all of that said, you are still going to be required to contribute to Social Security and may not be able to afford to contribute 6% of your earnings to a 401k program.
What you can do is to get serious about saving for your retirement and not depending solely on Social Security for your income.
There are just about as many ways to plan for retirement as there are people that should be planning. The nice thing is that you have the internet to help.
Learn as much as you can and find a plan that you can afford. Remember, you will be in this for the long haul.
While I'm not recommending any particular plan over another, here is a link to a retirement calculator that may help you get started:
About The Author:
Terry Rigg is the author of Living Within Your Means - The Easy Way http://www.homemoneyhelp.com/ebookadpage.html and editor of The FREE Budget Stretcher Newsletter and Budget Stretcher web site http://www.homemoneyhelp.com. He has 25 years of experience counseling individuals and families concerning their personal finances.
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