"When prosperity comes, do not use all of it."
- Confucius (circa 551-479 B.C.), Chinese philosopher
I think if there's one lesson I wish I had learned sooner in my life, it would have been knowing the benefits of saving a portion of each of my paychecks. Oh, I began saving during my career but not as soon as I should have. As it turns out, my wife began working after our children were school age, so that helped. Then my company offered us a 401-K plan to which they contributed if you were wise enough to sign up. That helped too. A lot of folks didn't sign up, which I never could figure out, since they were getting an immediate 50% return on their investment.
What I couldn't see very clearly then, but do now, is the power of compound interest over a long period of time. A little set aside on a regular basis becomes a lot if you leave it alone and allow it to grow for 20 or 30 years. I think most people know this now, but fail to act upon it soon enough. I know when I was younger, the wife wasn't working, we had children, there were bills and emergencies, so it was easy not to save and invest. Until the company I worked for made it easier for me to put a part of my salary aside, I languished in promises to myself that I'd get around to saving "one of these days."
That's part of the theory behind the proposal to allow workers to direct a part of their wages and salary that currently flows into Social Security to an individual retirement account--making it easy for everyone to invest on a regular basis. Larry Kudlow has written an article about this over at Townhall.com. It's worth a read.
Mr. Kudlow points out how the "return" on contributions to Social Security fall well below average returns on monies invested in the stock market, even if compared to the worst 20-year period for investors, 1929-1948. Yet, many people are still fearful of a plan that would put their hard-earned money into stocks or other securities. If you're one of these and would like some insight into how the whole thing would work, take a look at Kudlow's column. I don't know about you, but I, for one,wishsomething like this had been available to me when I was a younger man.
In the meantime, whatever you do, put aside some of your earnings each payday. Trust me, when you turn 60, you'll be glad you did, even though it might be a stretch for you today.
7 comments:
How many of us were shortsighted and didnt save enough? Now what?
I agree with this article completely. I didn't have a chance to
contribute to a 401K until 10 years ago. I have put money into it
regularly since then. I had saved even before that--always
putting something into savings. I was able to buy a house
7 years ago that is now paid for--I rented it out until it was paid
off. I don't have enough in my 401K to retire--but it will certainly
help.
Your comment on 401K savings is fine. (The Roth IRA is another good retirement savings vehicle unless you are already affluent and thus exceed the amount allowed by law.) But I have trouble with the Social Security comment. True that SS earns little. It was supposed to be a payoff for those retired or in need. If the surplus is put in Bonds and lock boxed it would earn something. But is it? How can SS be treated like a savings for retirement account now when there are already obligations to the current retirees and baby boomers. Bush is a financial moron if he believes that SS is a retirement savings account now. SS is not supposed to be "the" retirement account unless you put nothing aside and have no pension.
I believe the proposal is to give each individual the opportunity to re-direct a part of what he currently pays into Social Security into some other investment vehicle thereby allowing greater returns, which would increase what is available for that individual when he gets ready to retire. In your golden years, you'd have in addition to the amount from Social Security, the amount from the retirement account which you funded with your re-directed Social Security payments. Kudlow speculates that would be approximately 60% more than you're now getting from Social Security alone. Sounds like a good idea to me, especially since continuing to administer payroll taxes as we do today will bankrupt the system sometime down the road. I don't think Bush, or any other president over the past 20 years, has been unaware of this, and didn't recognize the need for change. It's just that most in Congress feel they can't propose any changes to Social Security without getting kicked out of office. They may be right.
It worked for me!
SS can be saved if restructured. It is pathetic how all politicians have used it as a political football. The very idea that a reduction in the rate of increase is a cut in benefits and that increasing the retirement age is a bad idea is nothing more than political BS.
SS was never supposed to be a full retirement account it was to be a supplement so the elderly wouldn't starve. What happened to personal responsibility? It's time for congress to change the tax laws to encourage savings, exempting a $3000.00 IRA account is a joke. Make the Congress operate under the same retirement rules for retirement as the general public and the system will change.
If you want to identify the problem look at your conrgressman that uses retirement accounts for social tinkering.
I'm afraid that Larry Kudlow is way off base.
There currently rest exactly ZERO dollars in the social security trust fund. So what if he gets his way and allows these dollars grow at the same rate as the S&P500 instead of the present growth rate: (ZERO dollars) X (any growth rate you wish to insert) is still (ZERO dollars)!!!
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