1 00:00:02,190 --> 00:00:06,331 If you’re counting on Social Security to finance your retirement, you’re in for a 2 00:00:06,340 --> 00:00:10,060 big surprise—and not the good kind. 3 00:00:10,060 --> 00:00:12,600 Let me give you two reasons why. 4 00:00:12,600 --> 00:00:16,080 One: Social Security is going broke. 5 00:00:16,080 --> 00:00:21,420 And, two: Even if it weren’t going broke, it couldn’t possibly cover the cost 6 00:00:21,420 --> 00:00:23,620 of a decent retirement. 7 00:00:23,620 --> 00:00:29,460 Let’s look at these two reasons in a little more detail, and then I’ll propose a solution. 8 00:00:29,460 --> 00:00:32,260 Social Security is going broke. 9 00:00:32,260 --> 00:00:38,200 When this government program was set up in 1935, the average life expectancy was 60. 10 00:00:38,200 --> 00:00:43,040 But you couldn’t collect your first check until you reached 65. 11 00:00:43,040 --> 00:00:48,980 In other words, most people didn’t live long enough to receive Social Security. 12 00:00:48,980 --> 00:00:53,560 And most of those who did, didn’t collect it for very long. 13 00:00:53,560 --> 00:00:56,920 Today, the average lifespan is 79. 14 00:00:56,920 --> 00:01:03,500 So now, most people do live long enough to receive Social Security—for 10, or 20, 15 00:01:03,500 --> 00:01:06,140 or even 30 years. 16 00:01:06,140 --> 00:01:10,980 Here’s another important piece of information: When the program started, the ratio between 17 00:01:10,980 --> 00:01:14,960 worker and retiree was 159 to 1. 18 00:01:14,960 --> 00:01:20,780 That means for every one person drawing benefits, 159 were paying in. 19 00:01:20,780 --> 00:01:23,940 Today the ratio is 2.8 to 1. 20 00:01:23,940 --> 00:01:25,400 You get that? 21 00:01:25,400 --> 00:01:31,560 We’ve gone from 159 workers supporting every retired person to fewer than three workers 22 00:01:31,560 --> 00:01:34,040 supporting every retiree. 23 00:01:34,040 --> 00:01:36,500 And it’s going down. 24 00:01:36,500 --> 00:01:41,700 You don’t need an advanced math degree to figure this one out: Social Security is spending 25 00:01:41,700 --> 00:01:44,020 more than it’s bringing in. 26 00:01:44,020 --> 00:01:45,440 Far more. 27 00:01:45,440 --> 00:01:51,340 Its own Board of Trustees has said that it will be bankrupt within twenty years. 28 00:01:51,340 --> 00:01:53,740 That doesn’t mean it won’t exist. 29 00:01:53,740 --> 00:01:58,560 It means that either the government will pay you less than it promised, or it will have 30 00:01:58,560 --> 00:02:01,560 to raise taxes to make up the shortfall. 31 00:02:01,560 --> 00:02:03,600 Most likely, both. 32 00:02:03,600 --> 00:02:07,120 Sounds about right for an entitlement program, doesn’t it? 33 00:02:07,120 --> 00:02:14,600 Starts out small, but just keeps growing and growing until it collapses under its own weight. 34 00:02:14,600 --> 00:02:20,600 But let’s indulge in a fantasy and say that Social Security is perfectly designed, perfectly 35 00:02:20,600 --> 00:02:23,580 balanced, and efficiently run. 36 00:02:23,580 --> 00:02:27,560 And that you would get every dollar you were promised. 37 00:02:27,560 --> 00:02:32,520 You’d still have a major problem if that’s all that you’re relying on. 38 00:02:32,520 --> 00:02:40,060 To illustrate, in 2017 the average monthly Social Security check was a little over $1,400. 39 00:02:40,060 --> 00:02:47,940 That’s under $17,000 a year—barely above the poverty line for a two-person household. 40 00:02:47,940 --> 00:02:51,880 Do you really want to live at the poverty line in retirement? 41 00:02:51,880 --> 00:02:54,920 Why in the world would you plan for that? 42 00:02:54,920 --> 00:02:57,840 But sadly, many people are. 43 00:02:57,840 --> 00:03:02,140 According to a recent study, 53 percent of un-retired baby boomers 44 00:03:02,140 --> 00:03:04,620 have no retirement savings. 45 00:03:04,620 --> 00:03:09,980 That means they’re planning to rely on Social Security for their retirement income. 46 00:03:09,980 --> 00:03:11,400 That’s them. 47 00:03:11,400 --> 00:03:13,680 Don’t let it be you. 48 00:03:13,680 --> 00:03:16,760 Here’s the right way to prepare for retirement: 49 00:03:16,760 --> 00:03:19,320 First, get on a budget. 50 00:03:19,320 --> 00:03:22,160 I don’t care if you’re 55 or 25. 51 00:03:22,160 --> 00:03:26,600 I don’t care if you’re making $400,000 a year or $40,000 a year. 52 00:03:26,600 --> 00:03:29,540 You need to have a plan for your money. 53 00:03:29,540 --> 00:03:34,660 I love motivational speaker John Maxwell’s line that “a budget is simply telling your 54 00:03:34,660 --> 00:03:38,349 money where to go instead of wondering where it went.” 55 00:03:38,349 --> 00:03:44,400 That means knowing, before the month starts, where every dollar you make is headed. 56 00:03:44,400 --> 00:03:50,520 Whether it’s the mortgage or rent or groceries or a car payment or whatever, 57 00:03:50,520 --> 00:03:54,120 you need to give every dollar an assignment. 58 00:03:54,120 --> 00:03:57,720 Second, attack and avoid debt like the plague. 59 00:03:57,720 --> 00:04:02,520 Most Americans spend 25% of their income paying off debt. 60 00:04:02,520 --> 00:04:08,800 Imagine how much money you could save if you didn’t have this albatross around your neck. 61 00:04:08,800 --> 00:04:11,640 Well, actually, you don’t have to imagine. 62 00:04:11,640 --> 00:04:14,200 Again, it’s simple math. 63 00:04:14,200 --> 00:04:19,430 A 30-year-old investing $500 a month in an investment fund with a six percent annual 64 00:04:19,430 --> 00:04:24,900 return will have over a million dollars by the time he’s 70. 65 00:04:24,900 --> 00:04:29,260 So make a plan to get rid of your debt for good. 66 00:04:29,260 --> 00:04:31,500 I like the “snowball method.” 67 00:04:31,500 --> 00:04:37,940 List your debts, smallest to largest, putting every extra dollar you have toward the smallest 68 00:04:37,940 --> 00:04:41,840 while making minimum payments on the rest. 69 00:04:41,840 --> 00:04:47,360 Once the smallest is paid off, roll that payment into the next-smallest. 70 00:04:47,360 --> 00:04:51,320 And do this until all of your debt is paid. 71 00:04:51,320 --> 00:04:54,940 Finally, put Social Security in perspective. 72 00:04:54,940 --> 00:05:00,540 Anything you get from it should be considered a fringe benefit—icing on the cake, 73 00:05:00,540 --> 00:05:02,580 not the cake itself. 74 00:05:02,580 --> 00:05:06,020 There’s nothing wrong with getting Social Security checks. 75 00:05:06,020 --> 00:05:11,280 After all, you earned it by contributing to the system all those years. 76 00:05:11,280 --> 00:05:15,080 But there is nothing “secure” about Social Security. 77 00:05:15,080 --> 00:05:18,420 The last thing you want to do is rely on it. 78 00:05:18,420 --> 00:05:22,340 If you do, well—good luck. 79 00:05:22,340 --> 00:05:25,400 I’m Chris Hogan for Prager University.