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Saturday, January 19, 2013

Don’t Depend on Social Security

The current Social Security system is broken. It was started in 1935 by President Franklin Delano Roosevelt as part of the New Deal. Social Security was put in place to help the elderly, the disabled, and fatherless children. It was a great idea in theory, but in practice it has warped into a fiscal nightmare.

Most of the contributions made today are used to fund the current recipients of Social Security.  This means that the monies collected from the paychecks of people working now are used to pay those whom are currently getting Social Security payments. From my understanding, it has been like this from the program's inception.  Here's part the problem with Social Security:  People are living longer and less babies are being born.   So, there will be less people available to enter the workforce.  A reduced amount of younger wage earners in the workforce means reduced amounts on money to pump into the Social Security system for current receipts of Social Security.

So the question is, “Where is the money going to come from to pay those whom are working, when those folks are ready to retire?”  I think that the answer is that there will be no money available. This is unless the government can somehow keep the scheme going or find a viable way to fix the Social Security system.

I just received an annual “merit” increase, which is not even enough to keep up with inflation or the cost of living. I was looking forward to having a couple a dollars more on my paycheck to at least put some more gas in my car. When I got a recent paycheck, I noted that I got my expected "merit" increase. However, instead of my paycheck growing larger, the net pay was actually lower due to the new tax hike. More specifically, my Social Security taxes were almost double what I normally pay each pay period. Boy was I pissed. The Payroll Tax cut expired, which led to a 2% increase in employee FICA withholding. So employees will have to pay 6.2% in FICA instead of 4.2% from each paycheck.

This just confirms my suspicion that the government could be trying to stick it to us. I first became suspicious when I learned that the Social Security system was in financial trouble. Then the suspicion grew as legislators took measures to raise the retirement age. As it stands, I will not be able to draw full Social Security benefits until I am 67 years of age. This may change, depending on what the legislation is in the distant future.

The average life expectancy of most people in the U.S. is about 76 or so. If the government raised the retirement age to 70, then the average person would not collect Social Security benefits very long. That’s considering the folks who actually make it to retirement age and decide to defer payments until they reach full retirement age.The people whom have been working most of their adult lives and paying into the Social Security system for decades are the ones that are going to get screwed. It could also mean that most older Americans will have to work for the rest of their lives, without retiring.

My advice to you younger working adults is to start funding a 401k, especially if your employer matches contributions. I am not the greatest fan of 401ks, because they tend to lack diversity of investment options. I don’t like mutual funds, because I lost a shit load of money with them in my 401k during the stock market crash between 2000-2001. I still think that 401ks are okay if there is the option to invest in something other than stock mutual funds AND there is a generous employer match program.

IRAs (Individual Retirement Account) are much better than 401ks, since there is a wide variety of investment options available, including bonds and individual company stocks. I'm not a financial expert, but in my opinion, Roth IRAs are the best of them all for employees. Brokerage companies like, Fidelity are excellent and investors can set up an IRA through them. They provide some tools to help you do research into choosing investments for your portfolio. I would caution that if you do contribute money to a 401k or an IRA, keep in mind that there is an early withdraw penalty of 10% by Uncle Sam on top of the usual federal income taxes that you will pay.

So, folks should focus on setting up their own retirement account instead of expecting that the government will be there to provide for them when they are old and can’t work anymore. Keep in mind that Social Security is not a retirement account or a pension plan. Social Security should be thought of as more of a supplement to income. Young, working, and able bodied people need to transform their thinking about spending, find ways to increase income and avoid massive debt. Dependable insurance (i.e. life, auto, homeowner's, long term care) is a must, as well. 

If you have the mentality that the government will take care of you, then you will be at the mercy of Congress, the President, and the lobbyists. We are already know that most of them don’t give two doggy squats or a rat's ass about the constituents. Some politicians are more concerned about creating or altering laws in order to protect their own interests and to advance their own financial agendas. 

Remember how Romney talked about getting rid of most entitlement programs?  A few years ago, Senator Joe Lieberman (now retired) was arguing that entitlement programs like Social Security and Medicare be cut. He wanted this in order to avoid cuts in defense spending and to help balance the national budget. I suspect that politicians who lean towards making spending cuts in social programs and education rather than defense, are trying to make money for their friends in the military industrial complex. Be proactive and look out for yourself, because no one else will!

© Copyright 2013 Susan Broadbelt


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