Sometimes when discussing frugality I hear from people who spend $5,000/month (for example) and couldn’t dream of living on $4,000/month and investing the other $1,000.
Well, if you don’t want to live on $4,000 per month today, you’re REALLY not gonna want to live on $1,702 per month when you’re 67. And that’s what I personally have coming my way if I don’t save for my own retirement.
I think it’s cool how you can login and see your estimated Social Security benefit. It also shows you your actual income for every year on record. My first year of taxable income, I earned the princely sum of $1,137 when I was 16 working at Roeper Summer Day Camp in Birmingham, MI. (Any Roeper kids out there?!) My income has varied a LOT over my career, but my taxable Social Security income (which is capped) has averaged over $47,000 per year.
The social security tax rate is 12.4%. So on my $47K for 25 years I (and my employers) have paid a total of $134,796 in Social Security tax starting back when I was 16.
I’m cringing to even do the math… but if instead of paying it in tax, I was able to invest it for my own retirement I would have over $4.5 million at 67 (yes, adjusted for inflation). That would likely kick off about $26,000 per month in growth, not to mention the $4.5M I could spend too. So yeah. Social Security isn’t a super awesome tool for retirement. And if I were a betting man, I would guess it’s going to get worse not better by the time you’re old.
To those saying how living on $3K/month is so crazy. I’m all about spending more to live comfortably… but you might want to be saving some too or you’re going to have a rude awakening when you want to stop working one day.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.