Here’s an interesting report on the value of Social Security :
The average monthly benefit for retirees is $1,045 in 2007. A 65-year old who wanted to buy a guaranteed income of that size – with payments that go up with the cost of living and continue for a widowed spouse — would need to pay an insurance company about $225,000.
Firstly, if you are rubbing your hands and thinking “I need to save $225k LESS” for my retirement now, you have rocks in your head!
Relying on a government hand out is always bad advice … as the population ages there will HAVE to be changes in Social Security – none of them good … for you!
My advice is simple: PLAN to go without, GRATEFULLY ACCEPT what you are given.
But, there is an even more interesting lesson to be learned here:
The government is prepared to pay you 2% of that ‘invisible’ $225,000 that they have effectively put aside for you, each year … and INCREASE it each year to keep up with the cost of living … nice.
How would you like to be able to set up your own plan that works exactly the same way?
There is a way!
Here’s what you do …
TIPS are as safe as Social Security because they are US Federal Government Treasury Bonds … the difference is that you put up your own money so, unlike Social Security, the government can NEVER get out of it’s obligation to:
a) Pay you back your Principal (the amount you put in) plus the value of inflation! And,
b) Pay you a 6-monthly dividend (call it your ‘social security check’) also adjusted for inflation each year.
This is not financial advice, as you will need to see your own financial adviser to determine:
1. If this strategy can work for you;
2. How much to expect in bond interest each year; and,
3. Whether you should substitute inflation-protected MUNI’s for the TIP’s that the author recommends … useful if you are investing outside of a tax-shelter (e.g. ROTH IRA).
Let me know what you think?