Social Security for Generation Y (or anyone else, for that matter…)

It’s not often that positive things are said about Social Security.  Normally statements like, “There will be none left for Generation Y” and “You will need to work until you die” are heard.  Well, don’t let those comments phase you.  It doesn’t have to be that way.

Sure, it could be true that by the time Generation Y is old enough to collect Social Security, there won’t be any left.  That only means that Generation Y (and anyone else who is interested) needs to start taking matters into their own hands.  Don’t want to get duped in the long run?  Create your own Social Security.

The tax rate per pay check for Social Security is 6.2%.  So, that means that whatever you make in gross pay (before taxes) is subject to the 6.2% Social Security tax.  Let’s say that over a two week pay period you gross $800.  From that amount, $49.60 would be taken for Social Security.  The more you make, more is taken.

In order to avoid any financial folly in the future, I suggest making your own Social Security fund.  It’s better to be safe than sorry.  In order to do this, simply take the amount that is deducted each paycheck for Social Security (in our example it was $49.60) and place it in a high interest rate fund, such as an IRA.  Here is how our example would play out if we were to do this:

$49.60 every two weeks = $1,289.60/year
$1,289.60 each year for 15 years = $19,344

It’s tough to calculate the precise amount that would be in the IRA once retirement age came around but this Roth IRA calculator suggested that we would have $23, 153.62 after 15 years at a rate of 6.9%.

That amount may not seem like a lot but it is.  That amount could pay for some college for your children or it could be used to pay off some outstanding debt or other needed expenses, such as home repairs or assisted living bills for a parent.  Plus, this amount is the minimum that would be accumulated.  If the investment amount was changed when more salary was earned, a higher total would appear at the end.

It is important to note that this should not be the only way you are saving for retirement.  Put as much money as you can into your 401K, gather a few investments, and save money in a savings or money-market account.  Don’t put all of your eggs in one basket!  This is an excellent way to save money, especially since it is such a small amount at any given time but don’t make it your only way to save.