Why I Don’t Count on Social Security and Why You Shouldn’t Either

We have all seen the news reports. By now, most of us have done the math. With life expectancy climbing and a generation of baby boomers on the brink of retirement, will social security be there for you and I by the time we retire? The answer is, probably not.

Social security gets deducted from paychecks and is paid out by self-employed individuals in their tax statements. It’s a requirement to put money in the proverbial pot. The problem with social security is that it’s a “put-all-the-money-in-one-pot” system. The guarantee (if you could call it that) is that a elderly person will receive fixed payments from social security from age 65 until they pass away. Yet, these payments are minimal, and barely enough to live on, while not adjusting for inflation adequately. Instead of putting all of your financial eggs in one retirement basket, consider some other options.

401K
Many employers offer the advantage of a 401K and matched asset plan. A matched asset plan means that your employer will make contributions matched to your 401K contributions, using stocks as a vehicle for long-term prosperity.

IRA or Roth IRA
A traditional retirement account, an IRA uses a consortium of stock options to help you build a nest egg for retirement. While deducting from an IRA before age 65 comes with a penalty, the penalty for early withdrawal from a Roth IRA is much less; disappearing altogether at age 55.

How much to contribute? Every robust financial plan has it’s pitfalls. IRA’s, Roth IRA’s and 401K plans typically have a maximum contribution amount for a calendar year. It’s smart to put the maximum amount in each investment vehicle and to have all three. I invest 5 percent of my gross income into my accounts each month. I focus on the maximum allowance for my Roth IRA, and then move on to my other accounts afterward. Doing this ensures that I will not outlive my retirement savings, and will continue to have a nest egg to draw upon in the event of an emergency.

Of course, retirement planning doesn’t mean that you shouldn’t have liquidated cash on hand in regular savings and mutual funds to continue to increase personal wealth. In these, contribute at least 10 percent of your gross earnings until you reach a financial goal. After reaching your savings goals, refocus that 10 percent over your retirement savings and other investments.

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