For nearly two generations, Americans have come to see the Social Security program as the default retirement plan for when we end our time in the workforce. Since 1935, Social Security has provided retirees with a set amount of money each month, based on what they had to pay in during their working lives. Nearly 85 years after its passage, is it wise for us as Americans to trust in this program to provide for during our golden years?
As a financial coach, I have to invariably answer NO! While the wisdom of the policy is a debate for another time and place, there is a serious problem lying in wait for our personal financial state; those who plan to rely on Social Security for their retirement years really need a serious wakeup call, and fast.
When asked this question, I refer to a series of facts presented by Chris Hogan of Ramsey Solutions in the following YouTube video. Social Security is simply not a sustainable program; it is sending out far more dollars than it is taking in. It is only a matter of time before either benefits have to be cut, or taxes have to be raised in order to pay the obligations.
Watch Chris’ discussion below as he dissects some of the problems with relying on Social Security for retirement.
One issue that Chris did not mention in this short video is also the fact that Social Security has a negative rate of return. What that means is that if you put, let’s say, $200,000 into the Social Security system over a working lifetime, you’ll get less than that back when you retire. Just think about that for a moment: your money works harder sitting in a mattress than it does in the coffers of the federal government.
To me, just thinking from a basic investment standpoint, that’s a horrendously terrible place to put your money. We would literally be better just holding that cash for all these years than having it taken by the Social Security system. If we put our money into some of the lowest performing mutual funds in our retirement accounts, we would still have more money available for our retirement that Social Security would give back to us.
Especially for my fellow Millennials and the GenZers, it is quite frankly foolish to rely on the program for our retirement if we plan to retire in 20, 30, or 40 years from now. The Social Security Trust Fund is currently running out of money because the federal government is dipping into the fund rather than adding to it (due to the decreased ratio of workers per retirees, as Chris mentioned above).
By 2034, the trust fund will be depleted, and Congress will either have to borrow more money (on top of however many dozens of trillions of dollars in debt the government will be by then) to pay the beneficiaries. And if the government’s debts get called by its creditors? Social Security will hardly be on the list of priorities.
So what to do? No matter what your age, get started now. Pay off all your debts as fast as possible, then contribute to your employer’s 401k or 403b plan, and open up a Roth IRA to contribute after-tax dollars that will not be taxed upon withdrawal at retirement. Once you are debt free and have an emergency fund, invest 15% of your household income into retirement, and choose solid investments that have long track records of good returns.
Are you unsure of how to go about this? My goal is to help you win with money, and no matter what your situation looks like today, there can be a brighter tomorrow. The sooner you start, the wealthier you will be!