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Don’t Count on Social Security: Why It’s Crucial to Take Control of Your Retirement NOW

Mindy Jensen
7 min read
Don’t Count on Social Security: Why It’s Crucial to Take Control of Your Retirement NOW

Last week, the Social Security Administration announced that Social Security benefits would not be increased for 2016. The indicators that were used to determine if an increase would be approved were flat, meaning there hadn’t been a significant increase in the cost of enough products to warrant a Cost of Living Adjustment. This is the third time in six years that benefits have not increased. That’s pretty disturbing if you’re counting on Social Security to take care of you after you retire. 

What really stinks is that those indicators don’t include things that actually make a difference to seniors. Some of the indicators they DO look at include the cost of gasoline and the cost of commuting. Not a really big factor in the budget of retired people. Some indicators that AREN’T included are the cost of healthcare, housing, and prescription drugs, which ARE something seniors need to consider.

Cost of Living Increases

According to the Social Security Administration, The Bureau of Labor Statistics determined there was no increase in the Consumer Price Index for Urban Workers (CPI-W). The Senior Citizens League would like to see the Consumer Price Index for Elderly (CPI-E) used to determine cost of living increases instead. If CPI-E was used, seniors would receive a 0.6 increase next year.

I’m in my 40s. I don’t believe that Social Security has the funding to be around in its current capacity when I am retirement age. I don’t believe it will suddenly get better for those of you who are younger than me.

It used to be, multiple-generation families lived on farms, and the younger members took care of and provided for the older members as they got too weak/old/infirm to contribute. The Industrial Revolution lured younger people away from the farms as the older generations stayed behind. 

The Social Security Act came out of the Great Depression to provide for seniors who couldn’t provide for themselves. The plan was for contributions to be made during the times you were working, and benefits paid out after you retired at the age of 65, based on your past wages.

But even in the very beginning of the program, it was acknowledged that:

“It is impossible under any social insurance system to provide ideal security for every individual. The practical objective is to pay benefits that provide a minimum degree of social security—as a basis upon which the worker, through his own efforts, will have a better chance to provide adequately for his individual security.” — From the Report of the Social Security Board recommending the changes which were embodied in the 1939 Amendments.

They knew before the first Social Security Benefits were ever paid out that it wouldn’t be able to provide for everyone. They INTENDED for this to be a supplemental program, rather than an absolute.


Related: How Much Do I Need to Retire?

Making Ends Meet

Have you ever walked into a large chain store and been greeted by an older person? They aren’t making $100,000 a year doing that. The majority of them also aren’t doing it just because they’re bored.

How about those samples you tasted at the membership warehouse you went to last week? Did you happen to notice the age of the person passing them out? While some of them are young, the majority of them in my area are past the traditional retirement age. Do you think they are doing it just for fun?

Nope. They do it because they need the money to pay their bills. I have yet to meet someone who started saving for retirement early, gathered up a big nest egg, retired, and now works at a low-paying job for kicks.

Did you know that small tweaks now can have a HUGE impact on your bottom line down the road?

The Incredible Advantage of Starting Early

Preparing for retirement isn’t something you can do in one day. The later you start, the more catching up you have to do. If you put “X” into retirement every year from age 22 to age 30, and then stop contributing, your nest egg will be larger at age 65 than if you start contributing at age 30 and put away DOUBLE until age 65. Eight years of savings at an early age will yield more than 35 years of savings if you start later. 

Compound interest is a powerful thing. I’ve written about it before. But when I was talking about it previously, I meant in the context of retiring early. What about being able to retire at all?

Beginning as early as you possibly can, make a savings plan. It doesn’t have to be huge dollar amounts, although that would certainly kick start your retirement fund. Aim for $50 a week. Or $20. Or $10. It doesn’t matter the amount, it matters more the habit. Of course, that bit is for those of you who are still in your teens. As you get older and it becomes more clear that you have not saved in the past, the contribution amount is far more important.

Starting early doesn’t mean you have to give everything up or make giant sacrifices. There is this huge misconception of frugality that you have to sacrifice everything fun. You don’t. You can still go out to dinner once in a while; just budget for it. You can still buy new clothes, just don’t go crazy at Nordstrom’s. Do you really need 12 pairs of jeans, anyway?

In fact, the later you wait to start saving, the more you are going to have to put away — and the more you’ll feel it.

Get Yourself a Budget

Do you know how much money you are spending every month? Do you know where it goes? Have you ever sat down and made a budget?

I thought I knew what I was doing, where my money went, how much I spent on everything. “Hey, I make my coffee at home rather than going to a coffee shop, I’m doing great!”

My husband suggested that we start writing down every penny to see how much we actually spent every month. “Knowing” what you spend every month and then seeing it written down in black and white is quite eye-opening. I didn’t realize I went to the grocery store six days a week. I wasn’t getting a lot, but every time I went, I picked up 2-5 more items than I had planned. Those 2-5 items weren’t free.

Write down your purchases for a month. See where everything goes. Make sure to include EVERYTHING, like the electric bill, the newspaper subscription, the mortgage payment. Note oddball expenses, like a new bicycle or car insurance, that aren’t typically due every month.

Getting a picture of what you are spending can give you an idea of what you will NEED for retirement. It can also show you which expenses you can cut without feeling too much of a pinch.


Creating Passive Income Streams

How would you like to collect a steady paycheck with increases every year or so for the rest of your life? Kind of sounds like Social Security, right? Well it isn’t Social Security; it’s financial security. Wouldn’t it be great to know that YOU control your financial security, rather than relying on a government agency to decide how much you get, when you get it, IF you get a raise, etc.?

There are many ways to create streams of passive income. Investing in the stock market can be a great way to grow your bank balance, but the whims of Wall Street are just that, whims. You have no control over what a company may or may not do, how their CEO will act, etc. You have no control over how Wall Street will react to those behaviors, either.

I watch the stock market. The way Wall Street reacts to some things seems almost counter-intuitive. A company reports earnings better than expected, and the stock drops. Or the company earnings are worse than expected, and the stock soars. New CEO? Twenty-five point drop. CEO gets fired? Stock rises. It really doesn’t make any sense.

Dividend stocks — stocks that pay you nominal amounts for each share you own — can be a way to create passive income, but there is no guarantee that the stock will continue to pay dividends forever; they can cancel at any time.

Related: Most Americans Won’t Retire Comfortably: Here’s What They’re Doing Wrong

So let’s talk about real estate. Owning rental property is a great, at least sort of passive way to create an income stream. The longer you own the property, the more income you generate, simply because the amount you collect grows each year. In theory. Yes, there are areas where rent is going down, prices are dropping, etc. But you won’t have to worry about that because you’re doing your research and buying smart!

People are ALWAYS going to need a place to live. Millennials are pushing back the purchase of their first house, many preferring to rent for the flexibility it gives them.

Here is where the passive part comes in. Property managers. You can hire someone to take care of everything for you. THEY find the tenants, THEY take care of the repairs, THEY collect the rent. Then they send you a check.

The work you do comes in the form of vetting the property managers. (I said sort of passive — you do have to do a little work!) Spend the time up front, making sure the property management company has the same criteria you do. You don’t want to put just anyone into your unit; you want to make sure they are screened and that they check out. So tell your property management company exactly what you expect. Or better yet, ask them opened-ended questions about their practices to see what they typically do. The guy (or gal, no sexism here) who says, “I’ll have it rented in one day!” is probably not the one you want to hire.

Overcoming Fear

Everybody’s favorite BiggerPockets Podcast co-host Brandon Turner hosted a webinar this week called “10 Mistakes Real Estate Investors Make.” (If you have a Pro membership, you can watch the replay at biggerpockets.com/proreplay and see past webinars.)

The first mistake real estate investors make is letting fear stop them:

  • Fear of loss
  • Fear of the unknown
  • Fear of what other people may think

So how do you overcome these fears?

  • Start moving
  • Remember: You are the average of the five people you associate with most
  • Gain a solid education

“A year from now, you’ll wish you started today.”

Don’t wait for the government to take care of you. Don’t wait to start tomorrow — tomorrow can always be pushed back one more day. And another and another until you discover that you have waited too long, and you cannot catch up.

Small tweaks now make a huge difference down the road. Make plans now, so your future is crystal clear.

How early did you start planning for retirement? See below for a link to the FREE October 28th webinar, “Using Duplexes, Triplexes and Fourplexes to Find Financial Freedom.” You can BET Brandon Turner is planning HIS own retirement!

What are YOU doing (in real estate or otherwise) to plan for retirement?

Let’s share our strategies in the comments section below!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.