Money makes the world go round, but the future of finances aren’t looking too good. This is especially true in regards to social security. We need to be prepared for it the government program falls out before we can use it.
Social security, for those who aren’t sure, is the process of paying a government tax on your wages, which go toward a pool of money that is then distributed toward the elderly that are too old to work. This is meant to help them pay what bills they may have even in their old age. This is a very simplified explanation but you get the idea.
But it takes more than one person’s social security tax to cover one retiree’s payment. According to the Social Security Administration, it actually takes at least 2.8 workers paying into the system to cover the benefits of a single retiree.
Here’s where the problem comes in.
Birth rates have been in a powerful decline since the financial crisis of 2008. Prices go up while wages stay low. As a result, more and more families are choosing to not have children. Raising a kid is extremely expensive, after all.
Fewer kids mean that fewer people will be paying into the social security system. Not to mention that many jobs are being lost to automation and other robots. Combine all that with wages not rising as they should, and you have notably less money going into social security.
Experts estimate that by next year, the worker to retiree ratio will fall to 2.7, below the needed minimum. Should things continue at this rate, social security as a whole will be shut down before most of the people contributing to it will be able to use it once they’re older.
Alternative Options
Unfortunately, you can’t exactly opt-out of social security tax. You can, however, make smart investments today that will save you in the future. One of the most common options is to establish a 401(k). This will let you contribute your wages into a fund that will grow itself over time, without taxation. Self-employed folks can look into establishing a solo-401(k) as well.
If you’re a waged employee, ask your company about 401(k) options. They will have someone that can guide you through the process. The sooner you start contributing, the more money you’ll have to fall back on when you retire.