Save Now, or Pay Later
by Burnett Sawyer
Your paycheck
Imagine that you’ve finished school, gotten a job, worked
hard all week, and this dollar bill represents your whole
paycheck.
Minus income tax . . .
As your employer, I’m about to hand you the check
when I stop, tear off about 20% like this, give it to Uncle
Sam and say, “Here’s my employee’s income tax.”
Minus Social Security . . .
Then I tear off another 30% like this, give that to Uncle
Sam too and say, “And here’s her Medicare and Social
Security tax.”
What is Medicare?
What is Social Security?
You get what’s left . . .
Finally, I give you this half and say, “Here, hard worker,
this is what’s left of your whole paycheck.”
Does that sound like
science fiction?
Senator Alan Simpson doesn’t think so. In Modern Maturity
magazine, he says that unless legislation changes the Social
Security system, our generation will pay 20% of our
paychecks as income tax, and 30% as Social Security tax.
That means we can keep just 50% of what we earn!
But the news gets worse!
Remember this 30% that we paid to
Social Security? Well, that won’t be
enough money for retired people to
live on in the year 2043. Remember
that year, 2043—we’ll come back to
that soon.
What’s the problem?
The Social Security system can’t
ensure our savings for retirement.
What’s the solution?
We have to start our own savings
plans, and the earlier the better!
Social Security Timeline
1935: Social Security starts
Ever since the Social Security
system started in 1935, it has
never been secure.
Social Security Timeline
1935: Social Security starts
1983: System is adjusted
2056: Social Security to end
While the system has been
“fixed” a number of times,
these fix-it jobs haven’t solved
the problem. For example,
writer Keith Carlson points out
that in 1983 Congress raised
payroll taxes, extended the
retirement age, and said that the
system would be in good
financial shape until 2056.
Social Security Timeline
1935: Social Security starts
1983: System is adjusted
1992: System is revised
2043: Social Security to end
2056: Social Security to end
But then, says Carlson, just
nine years later, a report said
that Congress had been wrong.
It said that Social Security
money wouldn’t even last until
2056; it would run out by 2043.
Remember that year, 2043?
That’s six years before we’re
supposed to retire at age 67!
Social Security Timeline
1935: Social Security starts
1983: System is adjusted
1992: System is revised
2029: US bankrupted!
2043: Social Security to end
2056: Social Security to end
What is the AARP?
Do you think that news is bad?
The AARP Bulletin reported on
the Bipartisan Commission on
Entitlement and Tax Reform,
which warned that entitlement
programs such as Social
Security are growing so fast
they could “bankrupt the
country” by the year 2029—
when we’re only 47!
So what should we do?
Next fall we can vote in a presidential
election for the first time. Both Democrats
and Republicans say they have a plan that
will use money from the budget surplus to
fix Social Security. What if we all vote for
the presidential candidate with the best
plan? Will that save our retirement funds?
Don’t count on it! As the track record for
Social Security shows, one more fix-it job
won’t fix the system.
We have to start our own
retirement plans . . .
. . . and do it early in our careers. In fact, in his
book, Retirement 101, Willard Enteman says
that we should start a personal savings plan the
day we get our first paychecks.
In sociology class last week, Mr. Christians
made the same point. He gave us this bar graph
showing that if our goal is to save $200,000 by
age 67, we had better start early before saving
gets too expensive.
A $200,000 Savings Plan
$900
$800
$700
$600
Age 25
Age 35
Age 45
Age 55
$500
$400
$300
$200
$100
$0
Monthly savings necessary
As you can see from the graph, if we start saving when we’re
25, we can reach $200,000 by saving just $49 a month.
A $200,000 Savings Plan
$900
$800
$700
$600
Age 25
Age 35
Age 45
Age 55
$500
$400
$300
$200
$100
$0
Monthly savings necessary
If we wait until we’re 35, we’ll have to save $113 a month.
A $200,000 Savings Plan
$900
$800
$700
$600
Age 25
Age 35
Age 45
Age 55
$500
$400
$300
$200
$100
$0
Monthly savings necessary
If we wait until we’re 45, we’ll have to put away $279 a month.
A $200,000 Savings Plan
$900
$800
$700
$600
Age 25
Age 35
Age 45
Age 55
$500
$400
$300
$200
$100
$0
Monthly savings necessary
And if we wait until we’re 55, we’ll need $832 a month.
Look at the difference!
$900
$800
$700
$600
Age 25
Age 35
Age 45
Age 55
$500
$400
$300
$200
$100
$0
Monthly savings necessary
To reach $200,000 by age 67 would cost $49 a month if we
start at 25, and $832 a month if we start at 55.
What’s my point?
The Social Security system can’t
promise us financial security when
we retire in 2049.
What’s the solution?
We have to start our own savings
plans . . .
. . . and the earlier we start, the
easier it will be to reach our goals.
So let’s get started!