Over the weekend, I saw a post on a social media site that stated the following.
“By the time I am 67, over $600,000 will be paid into Social Security on my behalf. That money would have been worth $1.9M if I had received a 5% return. My annual interest would be $95,000.
The Government promises me $3,075/month at 67, which is $36,900/year.”
I spent some time this morning trying to verify the math. It was impossible given the variables involved in how old the person is currently, what their annual salary and contribution is, but the numbers seemed reasonable.
I’m going to spend some time this week, talking about retirement planning. This issue is a complicated one for entrepreneurs given the fact that our incomes aren’t predictable, but there are some basic rules of thumb that I would like to share.
Social Security is a ripoff. There isn’t anything about the system that’s fair or reasonable. You cannot rely on it for your retirement needs.
The system steals from the rich and the middle class to give to the poor. If you never pay a dime into the system, you can receive a payment when you reach a certain age. If you don’t contribute, why should you get anything? It’s because they are taking from the rest of us to pay for those who don’t contribute.
Those of you who know me know that I am a big fan a legally reducing a salary to save the payroll taxes and investing the rest. Given the prior example, it’s obviously the right way to go, but the problem is investing the rest.
Things happen in life. Junior needs braces, the car breaks down, whatever happens will happen. As such, we need to have the discipline necessary to make sure to invest the savings.
Let’s say that I have a new client who comes in who was taking a $120K salary. I look at their salary, give it some reasonableness tests, and are able to cut that salary to $60K while taking a $60K distribution. I just saved them $9K per year in the 15.3% Social Security and Medicare tax. We also need to make sure that the savings are properly invested.
Let me leave you with this.
One of the biggest nightmares that I have seen is a successful entrepreneur who cannot afford to retire.
Sadly, I see it way more than I should.
The process of entrepreneuring seems not to go hand in hand with properly saving for retirement. It seems as if something is always getting in the way. Before you realize the mistake, it’s too late.
Let’s also realize that it’s a different process for us than most, because it’s all our money. The prior example where I cut a salary to increase a dividend wouldn’t be possible for an employee.
We need to set up a payroll deduction to make sure that the difference is invested. it needs to come out of your check, before the money even comes to you. At that point, you won’t be tempted to spend it.
There’s lots to talk about, so stay tuned.
We’re all going to get through this. Let’s get through it together.
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