Social Security is projected to run at a deficit in 2011 and beyond, with the coffers running dry by 2037. After all, there were an awful lot of babies born in the 1940s and ’50s, and they’re just beginning to reachretirement age. Starting this year, there will be more money paid out to these retirees than paid in by workers.
In the Land of Balanced Budgets, there are only two solutions: Cut benefits or raise taxes. Neither is very popular, which is probably why politicians don’t like addressing the Social Security thing.
Let’s do some retirement math. Let’s say you’re 30 years old and making a decent annual salary of $50,000. Right off the top, you have to put $3,100 into a forced retirement plan called Social Security. Your boss has to put another $3,100 into that account for you instead of giving it directly to you. Instead of having $6,200 in your hands to invest however you see fit, the government is now in charge of it.
Assume that you had instead invested that $6,200 in the marketplace with an 8% rate of return. When you are getting ready to retire at age 65, that $6,200 will have grown into $91,669.13, without any other additions (that’s the magic of compound interest). Assuming you added to your retirement account each year, as well as paid off your mortgage and all other loans, you should be financially fine in retirement.
Now let’s give the government that $6,200. How much will it be worth after 35 years? Zero. Zip. Zilch. Nada.
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