If you are under 50, don’t fall for the social security trap. You still have time to save yourself and build a fantastic retirement. “What is this trap?” you ask.
If you are planning for social security to be your primary source of retirement income, you are in the deadliest trap of them all. You are in the fixed income trap, and it is extremely difficult to remove yourself once it occurs.
What is the fixed income trap? The fixed income trap sneaks up on us and captures most people towards the end of life. I have seen many folks get caught in this trap—my parents are stuck in it now. All of our past roommates were living on pennies.
JOMO vs. FOMO
The earned income trap precedes the fixed income trap. The earned income trap is also called the Rat Race. Here you go to work every day to pay expenses and, if you’re lucky, to pay for a vacation.
If you never remove yourself from the earned income trap, your body will burn out. At that point, you’ll have to retire from the workforce. With no earned income flowing in, you’ll have to turn to passive income in the form of social security.
Is social security really that bad? Do you want the government to control how much money you receive? Or do you want your income to increase every month throughout retirement?
The fixed-income trap’s danger is that you adjust your lifestyle to your income level. For example, if you and your spouse receive $4,000/month in social security, you’ll adapt everything to fit inside this amount.
The Balanced Writer
Instead of building additional income streams and living a Happy Cash Flow Retirement, you’ll get stuck sitting on the porch drinking iced tea. You won’t be able to vacation, visit grandkids, or help pay for college. Sounds pretty sad to me.
How does social security look in person? From first-hand knowledge (senior citizen roommates), I can tell you that depending solely on social security is a death trap. Literally, if one social security check did not arrive, my roommates would have no food or shelter.
They were living paycheck to paycheck on social security. It’s not that they were terrible people, but if you don’t learn about money, your life belongs to someone else. In this case, the government.
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If you think it will be cool to live on $1,000/month—it’s not. I charged a 65-year-old roommate $500/month out of her $1,000 social security. She had to live the rest of the month with $500.
I consider myself a good person, but if her check dried up, I couldn’t keep her in my house. She would be homeless in a month or two. Is this really how you want to spend years 60-85? Now is the time to get your life together.
Enter dividends. Since you are reading this, I assume you want more from life. You want financial security, followed by financial freedom. Dividends can set you free, I promise. I am 41 years old and have a dividend income of $1,000/month, and it’s incredible.
Business in the Metaverse
Before I jump into dividends, let’s review what social security predicts for my future payouts. You can check your social security assumptions on the ssa.gov website.
Let’s review my future benefits package. If I retire at age 67 (over 25 years from now), I’ll receive a whopping $2,640. If I delay another three years, I will receive $3,305.
The math is ridiculous. Wait, wait, wait. I have worked for 25 years (since 1996) in the social security system. They want me to work another 26 years, earning $83,000/year (thank goodness for hidden military income), to make $2,640/month.
Working for another 26 years at $83,000 per year equals $2.15 million. Unsurprisingly, if you don’t learn how to invest your money, you’ll deserve to live on $2,640. Don’t be the person who earns $2 million and only has a government paycheck of $2,640 to show for it.
Dividends are so much better. I have done many “dividend versus” articles, including TSP, annuities, military retirement, royalties, and inflation. However, dividends vs. social security are not even close.
Don’t Gamble with Retirement 5
I’ll try to make it a fair battle. My wife and I have a $220,000 dividend portfolio that pays us $1,000/month in dividends. I will stop investing today (not in real life) and see how my portfolio compares to social security. Do you think my dividends can reach $2,640/month?
Even at a conservative rate of 10%, my dividend would reach almost $12,000/month. I can get over 10% by investing in dividend stocks that are on sale. If I micromanage my stocks, plus with dividend increases, I can easily increase my dividend income by 10% a year.
The power of compounding. We achieve such impressive results because of the power of compounding. Our brain cannot even comprehend the magnitude of compounding. The best thing to do is use it in your favor.
Overcome Financial Adversity
Let’s look back to April 2020—our dividends for that month were $106. Two years later, our dividend income is close to $1,000. Is it that difficult to believe we can reach $12,000/month in 26 years?
Don’t limit yourself. If you plan to leverage social security as your main source of income, please stop. No matter what you have going in your life, saving and investing need to become prominent parts of your daily habits.
Living on a fixed social security budget will teach you discipline if you don’t learn to control your money now. Our roommates were not having a fun time in life. They were struggling to have even a hint of happiness or joy.
As much as I hear that “money can’t make you happy,” it can provide you the path towards happiness, contentment, and life satisfaction. Don’t let anyone convince you that you are an evil person for seeking financial independence. These people are not your friends.
Conclusion. This was just a quick look at the raw numbers. I plan to keep revisiting this topic because I believe people depend on social security (and the government) too much.
What is Fixed Income?
If you can build your retirement system, you will be that much better off than the rest of society. Start by reading books, investing a small amount of money, and getting on the right side of compounding (versus lousy credit card debt).
I am an average person just like you. My wife and I live below our means and save and invest. We want to earn money to teach our kids how to conquer life early. Do not depend on social security to save your life; you can set yourself free.
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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