After a lifetime of paying Social Security and Medicare taxes in every payroll check, your grandparents and parents are counting on having Social Security and Medicare to help with the inevitable loss of income occuring at retirement.
Things may be different for your generation. Many are discussing privatizing Social Security and doing away with Medicare. Even Republican voters in the State of Florida are opposed to this plan. Read the report on a survey of Republican primary voters who objected 2:1 to plans to change these benefits (among Hispanic voters, opposition was even stronger, with voters opposing changes 4:1). Given what you know of the volatilty of the stock markets that are up one day and down drastically another, would you risk your retirement in the stock market? Would you risk your health on having the ability to pay for private health insurance when you retire? What can you do now to guarantee a comfortable retirement and good medical care in your old age?
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I am depending to a great extent on the stock market for my retirement. Social Security is by no means enough to live on in retirement and I am not very confident that Social Security as we know it will be around in 20+ years when I am of retirement age.
Yes, the stock market is volatile. But that is why you invest wisely. When you’re my age, you have your money more in stocks. These are volatile, but they tend to have more potential for growth. As I get closer to retirement age, I’ll need to move more of my money into safer investments like bonds. There’s no guarantee that this strategy will work, but there’s no guarantee that anything else will be better.
As teachers (my husband is an administrator) we are members of the Public School Retirement System. Hopefully, when we are ready to retire, the system is healthy and functioning as promised. However, we also have a small photography business that will supplement our income. Investing would be nice, and we plan on doing that, but we must educate ourselves better before diving in.
As a teacher I will have my teacher pension (in theory), but I am not depending on it. Beyond that I have a couple of financial planning strategies that I hope will take care of me in my "golden years".
First of all, I have a 403B that has a pretty good amount of money built up in it already. This will be the first money that I begin to use as I begin to use money from my retirement. It is a very growth oriented mixture of funds since I am pretty young. As I get closer to retirement this money will transition into much more conservative areas.
The second money I will depend on is whole life insurance. It gets a bad rap from many financial planners, but it will be the last money I use. The reason for this is that it should earn between five and twelve percent per year and the principle is never at risk. Right now my 403B is out earning my whole life insurance, but as that 403B money transitions into safer investments as I near retirement the whole life will still be earning bigger percentages; therefore, I it will be the last money I use.
Thank you for raising such an important question. I am retired now and living with what I did many years ago. We divided our money into 3 categories: 1 for spending for what we needed, 2 money for short term goals such as cars and 3 money for long term investment. Since we didn't have a lot of money, sometimes these really pinched our budget. We bought used cars or were on a bus-line for one of us, we bagged our lunches with no Starbucks etc, we started a college fund for each of our two children, and used some money for the stock market. Then we got lucky as I took another class on investing and found the teacher to be an investment adviser to other teachers I worked with. I checked him out thoroughly, got rid of my adviser at the time, and began working with this new person. I alone could never have achieved what he did for us as I was too conservative. We used the 403b, Roth IRA, the stock market with our money spread widely throughout the world, and our own savings. We are now living on that income though the recent recession has drastically cut into that money. Still, I think we will make it through with careful planning. I would recommend a small book directed at college students called If I Had a Million Dollars: How to Achieve Financial Independence Before Your Parents by Tim P. Munkeby. I've given it to many friends of my children and it was helpful to them.
I plan to fund my retirement by answering questions on the internet. Just kidding!
Medicare and Social Security will be around for a good long time, if we're willing to educate ourselves about them and fight for them. When GW Bush attempted to privatize Social Security, a lot of people who hadn't previously known anything about the program started doing their homework, and they--or perhaps I should say we--found ourselves disagreeing with privatization and looking into other options.
Now, variations of privatization plans are back on the table with Romney-Ryan, but it seems like with the '08 crash close in our national rear view mirror, Americans are even more reticent to gamble social safety net entitlements in the private market. I hope that as we get further away from that and the market continues to rebound, Americans don't lose sight of the risks involved.
Still, Social Security isn't enough. It hasn't quite kept pace with inflation (in other words, you can buy less with it than you could decades ago), and it is far behind our expectations for quality of life. While the internet or cell phones, for example, were unthinkable future luxury technology when our parents started working, they will be necessities (along with other as-yet-uninvented technology, probably!) for our children.
Let's not forget that Social Security payments were originally designed to work in concert with pensions, and that the combination of lower union membership, fewer companies offering pensions, and more workers changing jobs and careers means that fewer Americans can depend on having a pension upon retirement.
I've socked away little bits of money at a time, and still have the CD I opened back in high school when interest rates were still high. I opened my account with 5% interest--now it's impossible to find one that high. I have, however, left that CD alone to grow indefinitely, and at the very least, it's kept up with inflation. Most other investments are tied to real estate. If I keep up with savings and investments, and do things to reduce the cost of living in retirement--like downsizing to a small, efficient home, I hope to be in good shape.
I have a bit of a different view from most Americans on this matter. Retirement as a concept is a relatively recent phenomenon; it was created by the government to encourage investment, and to help insure economic growth and jobs for younger generations.
Before about 1920, ordinary middle-class people didn't retire, nor did they expect to do so. They worked, because that's what they knew to do. And they stayed productive and healthy Nobody thought they were entitled to stop working and paying their own way.
I've known of far too many people who retired and promptly died. I plan to keep on working; while I do anticipate being able to reduce my hours somewhat (thanks to savings and investments of my own), I will work as long as I can. I enjoy my work....maybe that is what makes the difference.
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