Social Security? Don’t Bet On It

Question of the Week: I’m 27 years old, and I think the outlook for Social Security is pretty bleak. What should I be doing to save for retirement? -Chris L.

Dear Chris,

You’re absolutely right to not plan on a Social Security check alone to fund your golden years. According to the Social Security Administration, the average monthly benefit for a retired person these days is just $845.

Fortunately, you’ve got two very important things on your side: plenty of time and a nice choice of plans that will help you save for your retirement. Here’s how two members of the Armchair Millionaire community are using these to pave the way to a secure retirement:

Starting young. "I began investing as much as I could as soon as I graduated from college. I have a Roth IRA and a regular investment account and contribute to both every month. Whenever there’s extra I invest in individual stocks. Since I’m only 23 years old, I have at least 45 years of investing ahead of me. I plan on using those years to the fullest!"—JoJo S.

Keeping it simple. "My goal is to have a portfolio that will run itself and not take too much time to tweak. I contribute the maximum allowed of my income to my 401(k) and my employer matches another three percent of my salary. The beauty of the 401(k) is that it’s completely automatic. My 401(k) is 100 percent invested in an S&P 500 index fund. Because most funds can’t beat this benchmark, it seemed like a no brainer."—Chris M.

401(k)s are offered by most employers, and are an excellent choice for retirement savings. Besides letting you defer taxes on your investment, a 401(k) will automatically deduct your contribution from your earnings, which puts your savings on autopilot. My checklist will help you get your money’s worth from your 401(k) plan.

The Armchair Millionaire’s Checklist for Getting the Most From Your 401(k)

• Get going! If you haven’t started contributing yet, talk to your Human Resources department. It will have everything you need to get started.
• Max it out. The most you can contribute this year is $15,000, or 25 percent of your gross income (whichever is less).
• Get the match. If you can’t afford the maximum contribution right now, at least make sure that you’re contributing enough to qualify for your company’s matching program.
• Be diversified. Consider mutual funds that invest in different parts of the market--large cap stocks, small cap stocks and international stocks.
• Keep a good thing going. If you leave your employer for greener pastures, do not cash out your 401(k)! You can roll it over into an IRA, move it to your next employer’s 401(k) or, sometimes, leave it in your old employer’s plan.

THE BOTTOM LINE: Saving for retirement may be the biggest financial task of your life. Take full advantage of the time you have and savings options available to you so you can decide when and how you retire instead of leaving that up to the government.

Comments

[Hopeless Peon]

I am 50, earn my state minimum wage, and have debt related to an uninsured extended illness (with loss of income), as well as (still) some student loan debt. My debt payments preclude saving and investing, and I am making little progress on reducing the principal.

I believe I will never be able to retire, and will become destitute in the actuarily likely event I become disabled before I die.

What happens to people like me when they are no longer able to work? I can see myself living in a flophouse (SRO) and paying more than half my meager income for rent. Is there any hope for me?