Like many other Americans, it’s likely that you’ll rely on a combination of Social Security and private retirement accounts for financial comfort as you get older. In the meantime, you’ll want to bulk up your financial safety net so it can see you through life’s rough patches. From college tuition to emergency medical expenses, let’s find out why all Americans need financial security now.
Table of Contents
- 1. Social security and retirement protect you later, but what about now?
- 2. Short-term disability doesn’t cover a full loss of income
- 3. Paying down debt is crucial for financial security
- 4. Not all maternity leave comes with full pay… Or any pay
- 5. You may experience illness in the family
- 6. Your pet needs medical care
- 7. Down payments are expensive
- 8. College is expensive, too
- 9. Your vehicle isn’t going to repair itself
- 10. Cushion for transitioning into a new job
- Financial security is within your grasp
1. Social security and retirement protect you later, but what about now?
The government safety net, as well as some privatized safety nets such as disability insurance, are beneficial backups in true emergencies. But when it comes to your financial future, relying on these limited forms of assistance is not your best bet.
For one, Social Security only pays out an average of 40% of your pre-retirement income, while most disability insurance covers 60-80% of your after-tax salary. This leaves you with two options: either fund the rest of your own retirement or simply go without a comfortable retirement fund.
And secondly, a Social Security safety net doesn’t account for sudden expenses, emergencies, and life-changing decisions that come up unexpectedly. Here are just a few of the reasons you should seek out financial security sooner rather than later.
2. Short-term disability doesn’t cover a full loss of income
The first reason on our list is drastic, but it’s still true. Should you ever need to draw from your disability insurance, you’ll have to take a pay cut if you don’t already have your own safety net in place.
We noted that private disability pays out 60% to 80% of your after-tax salary. Your Social Security safety net will pay a bit more than private disability, but it’s still only up to 85% of your average monthly earnings. And when you combine lower earnings with the increased medical costs as a result of short-term disability, you have the perfect recipe for debt.
3. Paying down debt is crucial for financial security
As many financial advisors will tell you, one of the first steps toward financial freedom is paying down your debts. And if you suddenly incur a debt where you had none before, such as an unexpected medical bill, then paying it down as quickly as possible is important for your financial health. For those who have a safety net to fall back on, this process is much, much easier.
4. Not all maternity leave comes with full pay… Or any pay
It’s unfortunate that the United States is the only country out of 41 developed countries that doesn’t offer paid maternity leave for new mothers. While making a good salary can offset some costs, the fact remains that babies are expensive.
And without a comfortable safety net to fall back on, unpaid maternity leave can put an enormous strain on your family’s financial future.
5. You may experience illness in the family
One situation where Social Security is definitely not the best financial safety net is when illness strikes someone in your family. If the person isn’t sick enough to qualify for short-term disability insurance but that person is sick enough to call out from work, you’ll need a robust bank account to get you through.
And if the illness strikes someone in your family outside of your household, you’ll have to make a choice: take time off work to tend to your family without pay or care for your family member in what little spare time you have.
6. Your pet needs medical care
It’s six in the afternoon, and you’ve just walked in the door. You look into the kitchen to see your beloved Fido puking up dinner, and then you see blood. Within minutes, you’re at the vet, face-to-face with an enormous medical bill for your beloved pooch.
This is exactly the kind of situation that rainy day funds are for, but if you lack financial security, chances are you’ll have to take on debt to make sure your pet receives proper medical attention.
7. Down payments are expensive
If you ever want to buy a house without taking on additional mortgage insurance, you’ll need a significant chunk of change to serve as your down payment. And rest assured! No social safety net can cover your down payment, let alone your mortgage.
8. College is expensive, too
Did you know that 43.2 million student loan borrowers have an average of $39,351 in student loan debt per person? Or that student loan debt grows six times faster than the nation’s economy?
That’s a lot of debt that a government safety net cannot save you from if you go to college without paying upfront. Whether you’re returning to school as an adult or you’re sending your kids to college, financial security can keep you from taking on enormous amounts of debt to pay for educational opportunities.
9. Your vehicle isn’t going to repair itself
If you’re one of the 78% of workers living paycheck to paycheck, chances are you don’t just have money lying around to repair your vehicle when it breaks down. But if you rely on your vehicle to get to work and back, you’ll need to be able to pay for repairs to keep it in working condition.
The same is true of any major expenses in your life, from busted boilers to boiling refrigerators. While few of these emergencies are as serious as a rattling car engine, going without hot water because you can’t fix your boiler is still an unpleasantly cold experience.
10. Cushion for transitioning into a new job
As a young professional, getting a raise equivalent to the median wage of $35,000 per year might seem like an awesome opportunity. And it is, until you realize that the average pay in the United States is closer to $52,000 per year.
Then, you might want to join the job hunt and look for a job that pays more. But when you’re in that transition period between an old job and a new job, you’ll need savings to fall back on in the meantime. Otherwise, you’ll just have to tough it out at your current, low-paying job or find a way to go without pay at all.
Financial security is within your grasp
Now that we know Social Security may not be the best safety net for the now. Instead, you should build your own with a MoneyLion RoarMoneySM account for only $1 per month. From helping you budget smartly to earning cashback rewards on everyday spending, you can maximize your financial results and grow your MoneyLion investment portfolio all at the same time.