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Social Security in the Red! What should we do?

March 27, 2010

This past week it was reported that Social Security will pay out more than it takes in through payroll taxes. It was estimated this would not happen until 2016, but due to the recession, social security took in less and paid out more as some unemployed workers opted for early retirement.

So what does this mean to us? This is a message to me that we need to take care of our own retirement and should not count on the government to provide for us. Thankfully, we still live in a country where we can make a great living if we have the right skill, idea, or work ethic, compared to more than 95 percent of the rest of the world. 

When you are earning a paycheck, it is important you start saving for your future. Below are the three things I would do to save for retirment:

No. 1:  Pay off your debts. No matter what investment options you have, you can figure the return on your investment of paying off debts by looking at your current interest rates. Also, removing debt takes away risk in your life. If you have lost a job or mayface a job cut in the future, the monthly payments you are able to make easily while working full time can become a huge burden if your income goes down.

No. 2:  Take advantage of employer matches with 401k accounts. Invest through your employer’s retirement plan if your company matches part of your retirement investments.  A 100 percent or 50 percent match automatically gives you a 100 percent or 50 percent return on your investment.  However, do not invest fully in your company.  Rather, you should diversify.  Think Enron.  After you get the full company match, I would not invest more in the 401k because of reason No. 3.

No. 3:  Open a Roth IRA account. With a Roth IRA, you invest money on which you have already paid taxes.  In the future, as your money grows, you are not taxed. When you retire, money withdrawn from your Roth is tax free. If you look at the federal government’s current obligations and recent ones it has taken on, it is easy to see we can’t continue as a nation to spend so much more than what is brought in through taxes. Therefore, it is pretty evident we will have higher taxes in the future. Pay your taxes now, invest in your Roth, and in the future, withdraw it without paying taxes again. The money you withdraw from your 401k or a regular IRA will be taxed when you withdraw it, likely at a higher tax rate.

Master your personal finances now and make yourself one of the Great Wonders of the 21st century!

If you want additional information on Social Security, I recommend the following Web site:

2 Comments leave one →
  1. Ben permalink
    March 28, 2010 8:55 am

    Great start on the Blog Andy.

    What might be even more of a key is to not put yourself in the position of having so much debt. I know from personal experiences I have squandered money away on things I did not need and have thrown away money on them month after month in interest fees.

    Unfortunately, what happens to the American economy when the majority stops buying things they will most likely never need?

    • March 28, 2010 2:28 pm

      Thanks for the comment. I think an individual needs to control their spending before they can start to plan for anything long term.
      I’ve heard the argument that credit has really driven the American economy the last couple of decades, but look at where it has gotten us today. If people were a little more responsible we may see a slow down in the economy, but once we reached a stabilization point I think we could see consistent growth without bubbles that quickly expand then explode.

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