Social Security? Don't count on it.
This is a message to all of those people under, say, forty out there.
Don鈥檛 rely on Social Security for any part of your retirement. When you鈥檙e thinking about retirement, assume that you鈥檙e going to be paying your own way.
That鈥檚 not a statement that a lot of people like to think about, but the data pretty much points to this as an inevitability. Let me explain why.
Take a look at the . During the years when the 鈥渂aby boomers鈥� were arriving on the scene (the early 1950s, for example), you saw a birth rate of 25 babies per 1,000 people in the population. By the 1970s, this birth rate had dropped to 15 babies per 1,000 people in the population and never really recovered. In fact, the current birth rate is the lowest it鈥檚 ever been 鈥� .
To put it another way, the age of the average American is rising. According to , the average American is about 0.2 years older each year and is .
With the population getting older and with fewer babies being born, you have more people reaching retirement age with less people entering the workforce. That means more people are moving to the point of taking money out of Social Security and fewer people are joining the workforce to pay into Social Security.
What happens to any pool of money if you suddenly start paying out more than you鈥檙e paying in? It dries up. The sheer numbers say that鈥檚 what鈥檚 going to happen to Social Security.
Well, why can鈥檛 something change? The problem with touching Social Security in its current form is that it鈥檚 a political nightmare. Politicians are afraid to touch the issue because people who are retired and receiving Social Security benefits are also the people who often have the most time to vote and to get involved in political causes.
There aren鈥檛 very many ways that this problem can be solved. The most likely solution will be to simply raise the benefits age for Social Security 鈥� and raise it again 鈥� and raise it again. What that would mean is that by the time we retire, we鈥檒l have to be very, very old before we see Social Security money.
What that means is that unless we want to work until we鈥檙e in our eighties, we鈥檇 better start planning for our own retirement now, not later.
Even if this doesn鈥檛 come to pass and a great new solution somehow solves the Social Security problem, saving for your own retirement is still incredibly beneficial, because it allows you to have financial means in retirement that go far beyond the small Social Security benefits.
What can you do? It鈥檚 simple. Start saving for retirement now, whether you鈥檙e 22 or 35. The earlier you start, the better off you are.
If you have a 401(k) plan at work, that鈥檚 usually a good place to start. If your employer matches your contributions, that鈥檚 even better. Don鈥檛 worry about not knowing anything about investing 鈥� it鈥檚 far more important to start contributing than to find the 鈥減erfect鈥� investment. Head over to your benefits office and get this set up today.
If you don鈥檛 have a 401(k) (or a 403(b) or something similar) at work, you can do it yourself by setting up a Roth IRA. It鈥檚 really easy to do 鈥� just open an account at an investment house (I use Vanguard) and set up an automatic contribution out of your checking account.
Think of it as a little thing you can do right now to help your future self a lot when he or she is in their sixties. Giving up a magazine subscription or something else small now can give you the freedom to control your own destiny when you鈥檙e older. That鈥檚 a great trade if you ask me.
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