Social Security vs. Personal Retirement Accounts

Having the benefit of both Social Security payments and a tidy sum in a personal retirement account makes those golden years more probable.

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Social Security made its first payments to retirees in January 1937, with ongoing monthly payments beginning in 1940. The program carries the guarantee of the federal government that it will continue to pay basic retirement benefits, as well as disability benefits, although with some uncertainty about the future levels. Personal retirement accounts, such as individual retirement accounts and 401(k) plans, offer a way for people to save and invest their own money, usually with tax advantages, and maintain some independence beyond a government guarantee in retirement.

Basic Retirement Benefits

Social Security provides basic retirement benefits to people who have worked throughout their lives but is not intended to fund your complete retirement. Social Security provides 50 percent of the income for more than half of all married retirees and 20 percent of the income for high-earning retirees, reports CNN Money. The remaining funds come from their own resources, including personal retirement accounts.

Death and Disability Benefits

In addition to retirement, Social Security provides survivor benefits for the spouse of a deceased person, as well as his minor children. This benefit amount depends on the amount of time a deceased person worked and the average income over his working years. Social Security also provides for disability benefits with two different programs, Social Security Disability Insurance and Supplemental Security Income. SSDI is based upon the amount of time you worked, and SSI is a disability program for low-income people.

Your Own Funds

Personal retirement accounts contain a specific amount of funds corresponding to your own contributions, investments and the gains on those investments. This money is yours, and you can withdraw money from your accounts at any time, although you may be responsible for paying taxes and penalties for early withdrawals before age 59 1/2. Other than for death or disability, you have no access to Social Security benefits before retirement age.

Self-Directed Investments

With Social Security, you pay a payroll tax that is used to fund current benefits, with a promise to pay you benefits in the future based on the taxes that others pay. Personal retirement accounts accept your contributions and hold them for your investment and future use. You can choose where to invest the funds, on your own or with qualified advice from others, where you will receive the maximum return on your investment.

Tax-Deferred Status

Personal retirement accounts usually offer some type of tax-advantaged status, either allowing you to defer paying taxes on the money contributed as well as the gains on investment until retirement or allowing you to withdraw the money tax-free when you retire. Taxes on Social Security benefits at retirement depend on your income at that time. The tax-status of both types of accounts depends on the laws in effect at the time you retire.

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