Since the 1930s, many older and disabled Americans have relied on Social Security benefits to cover their basic living expenses—food, shelter, medication, transportation. Born out of the worst economic crisis of the 20th century, Social Security was (and is) a bold program designed to protect society’s most vulnerable adults.
The problem is Social Security has changed a great deal over the past eight decades. So have the Americans it benefits most. People live far longer today. Their standards of living are higher. They require ever more expensive medications and medical treatments, not all of which are covered by Medicare. And their Social Security payments are funded by payroll taxes on fewer workers, as birthrates decline and the ratio of retirees to working-age Americans rises.
For all these reasons and more, Social Security faces a grim reality: Within a decade, payroll tax receipts earmarked for the program are unlikely to cover its expected liabilities. According to the Social Security Administration, payroll taxes will account for just 75 percent of the program’s expenses by 2035. The remainder will have to be made up in some other way—or, more likely in the current political environment, simply left unfunded.
This is a big problem for workers in their 20s and 30s—strivers for whom retirement remains decades off. If you’re a relatively recent entrant into the workforce, or haven’t even started working yet, you owe it to yourself to think about how you’ll prepare for a post-Social Security world. Step one is clear: Start socking away, and investing, your hard-earned money.
If the threat of an insolvent Social Security program isn’t enough to convince you to plan for the future, here are five more reasons to start investing now.
- Early Investments Have More Time To Grow
Compound interest is often described as a “miracle.” That’s a little strong, but that’s not to say compound interest isn’t pretty darn impressive. For a simple explanation of the variants of compound interest, check out this excellent primer from Better Explained.
If you’d rather not relive your high school math days, the simplest way to think about compound interest is to picture a round, sticky stone rolling down an endless hillside. As it goes, it gathers speed, picking up debris and growing larger as it goes. Pretty soon, it’s a speeding behemoth capable of flattening anything in its path. Now imagine that stone is your nest egg.
- It IS Possible To Beat the Crowd
Savvy, disciplined investors can beat the crowd and achieve higher returns than the average investor (and market benchmarks). In Beat the Crowd, his latest volume, investing guru Ken Fisher explains how investors can leverage contrarian principles to take advantage of—and profit from—opportunities that investors who follow the herd can’t see.
- Financial Fraud Is Real
You’ve surely heard of Bernie Madoff, the notorious Ponzi schemer who stole billions from his investors before his scam fell apart. Sadly, he was just the most famous in a long line of financial fraudsters.
If you don’t start investing early, you’re more likely to feel pressure to play catch-up as you get closer to retirement—and more likely to be swayed by charming schemers like Madoff. While fraud experts like Wray Rives show that it’s possible to detect fraud, it’s by no means a sure thing. Taking the long way is the best way to protect yourself.
- You Don’t Know What the Future Holds
Cliched but true. No one knows what the future holds. Many savers and investors need to tap their nest eggs long before retirement, whether for expected expenses, such as their kids’ education, or unexpected events, such as a serious injury or illness that requires expensive medical treatment. Though you can’t keep emergency savings in tax-advantaged retirement accounts, it’s important to have an ample personal safety net.
Do you have an investing plan yet? If not, what are you waiting for?