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Your False Sense of Financial Security

Imagine for a moment that you found out that your primary retirement plan:

  • Probably won't have enough money to meet its current benefit level 27 years from now
  • Provides a benefit that's already below what you'd get in a minimum-wage job
  • Mandates a contribution of more than 10% of your salary to it, even though your benefits will likely be slashed
  • Lets you pass on virtually nothing from that plan to your children

What would you think about that particular plan? Does it sound like it provides a secure foundation for your future?

You're stuck with it
Unfortunately, if you work in the United States, you're already enrolled in such a plan. It's commonly known as Social Security, and for far too many people, it provides a false sense of financial security that lulls them into not investing enough for their own retirement. The results of putting too much trust in that system can be devastating.

For instance, according to the Employee Benefits Research Institute, about 30% of Americans ages 55 and over have less than $10,000 saved for retirement. These are folks near the tail end of their peak earnings years, with only around a decade or so left before a standard retirement for compounding to work its magic on their investments.

To get that far along in your career and forget to save for your retirement is a tragedy. When all is said and done, $10,000 in total savings is a very low hurdle to clear over the course of a career. You could even surpass it by stuffing $1 a day under a mattress over the course of your working life. Yet nearly a third of Americans age 55 and over can't lay claim to even $10,000 for retirement.

Avoid the roughest waters
With Social Security providing little financial security, those with no savings are in for a world of hurt when their retirement day arrives. If you would rather not join them, you have two options:

  • Plan to work until you are physically unable to do so, or
  • Start investing now.

If you haven't invested before, but would like to, one of the easiest and least expensive ways to get started is through programs known as Drips, or dividend reinvestment plans. To encourage investing in their stocks, many companies offer these programs as low- or no-fee ways to both buy their shares and compound your investment through reinvesting their dividends.

Best of all, if you're just getting started and only have a little bit to invest, many Drips allow you to participate with very small contributions. In most situations, a small investment would be eaten alive by fees or commissions; in a Drip, you can put far more of your money to work for you.

While you might need to buy a full share or make a larger initial contribution to get started, many plans will let you invest $50 or less for any subsequent investments. That's a tremendous opportunity to put not much more than $1 a day to work for you in a spot where it has a legitimate shot of giving you much better returns than your mattress.

Here are just a few companies with low-cost Drips that enable you to start small:


Minimum Opening Contribution

Minimum Optional Contribution

3M (NYSE: MMM  )

1 Share of Stock


Abbott Laboratories (NYSE: ABT  )

1 Share of Stock


Cummins (NYSE: CMI  )

1 Share of Stock


Duke Realty (NYSE: DRE  )

$250 or a commitment of at least $25 per month via electronic funds transfer

$50, or $25 via automatic electronic funds transfer

ExxonMobil (NYSE: XOM  )

$250 or a 5-month commitment of $50 per month


Fortune Brands (NYSE: FO  )

1 Share of Stock


General Mills (NYSE: GIS  )

1 Share of Stock


Begin with the end in mind
If you make a habit of investing even a little bit every month, you'll soon be surprised at how quickly your nest egg can compound. Keep it up for the rest of your career, and you can turn the false sense of financial security you may have had from Social Security into a real sense of financial security enabled by your nest egg.

At Motley Fool Rule Your Retirement, we know that getting started is often the toughest part of executing a successful long-term financial plan. That's why we're thrilled right now to give you the opportunity to join us for a free 30-day trial to learn how we can help you. Simply click here to get started and get access to all the tools and techniques that can help you get from where you are to a more financially secure retirement.

At the time of publication, Fool contributor Chuck Saletta did not own shares of any company mentioned in this article. Fortune Brands is a Motley Fool Stock Advisor selection. 3M is a Motley Fool Inside Value pick. The Fool has a disclosure policy.

Read/Post Comments (7) | Recommend This Article (18)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 06, 2010, at 5:25 PM, proudmontanan wrote:

    Steve113448: You are wrong. As a 29 year old investor I find this information very useful and I'll put it into practice with dividend stocks in the future.

  • Report this Comment On January 06, 2010, at 5:32 PM, bzw51 wrote:


    I'm sorry you feel like that. But keep in mind, that people over 55 that paid for the children's private college education and their Parents nursing home just now can put money towards retirement.

  • Report this Comment On January 06, 2010, at 5:43 PM, Duke5343 wrote:

    This is the kind of info i copy and forward to kids i work with and explain to them while in their 20's & 30's that 10% per year invested or in 401K could become a million at 60 is worth it. I on the other hand at age 47 we did not get this kind of info at age 20


  • Report this Comment On January 06, 2010, at 5:57 PM, bernbern0 wrote:

    To Steve 113448: You obviously did not get the point of this very helpful article. It was trying to help younger people who have a long horizon invest for their future. With your disdain, it's you who shouldn't be reading these articles. Many moons ago, I benefited greatly from dividend-reinvestment plans, and I did the same for our two sons who also greatly benefited as well.

    Good advice Chuck, and I hope young investors are reading your great article.

  • Report this Comment On January 06, 2010, at 6:32 PM, vgaymer wrote:

    I know it's not the same thing, but some brokers, such as Sharebuilder will allow you to reinvest dividends for free. Sharebuilder does this even if the company itself does not have a DRIP plan. Switching between reinvestment and cash deposit is a simple toggle switch.

    Tradeking, I was informed, only reinvests dividends if the company has such a program.

    This I find a lot more flexible than going to the individual company, however, of course, it costs more in transaction costs, but I find both brokers to be really reasonable in that regard.



  • Report this Comment On January 06, 2010, at 7:31 PM, Dwimby wrote:

    With regard to Social Security anyone who does not realize it is a supplement to and not a solution for retired living is not yet a fully grown adult. SocSec is a good program to fill some gaps that even a well thought out retirement plan leaves open. For the well healed it is merely walking around money, assuming you are still walking when you begin to get it. SocSec is just this and nothing more.

  • Report this Comment On January 06, 2010, at 9:51 PM, jennifergmd wrote:

    No offense, if they have not saved more than $10,000 at that point, not sure they have a snow balls chance in hell. It is because of dead beats like that that requires social security in the first place........

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