Dear Rusty: Regarding Social Security’s financial issues, three people contributing to Social Security for every one beneficiary sounds to me like a surplus. If they had given workers their own accounts, similar to a 401k, where they could manage their own money, it would have worked out more favorably for retirees. President George W Bush suggested these changes, but it was shot down by Congress.
The average worker now pays a 6.2% Social Security tax. If the government had bumped it up to say 7%, I don’t believe that me or anyone else would have cried too hard. There are ways of correcting this before the SS reserves are depleted and, hopefully, Congress will address Social Security’s financing soon. Signed: Skeptical Senior
Dear Skeptical: Believe it or not, putting SS contributions (from payroll taxes) into separate individual accounts is not really a good idea. For information, most people get back all payroll taxes they contributed to Social Security within about 5 years of receiving SS benefits. Even with decent public market returns, some individual separate accounts would eventually run out of money, causing some to lose Social Security benefits before they die, meaning they would likely live in poverty. People are now collecting benefits (on average) for decades, and the current SS format means that even those who contribute only a small amount will collect benefits no matter how long they live. Remember, the primary purpose of the SS program is to reduce poverty in America.
FYI, President Bush’s plan had opposition in the 2005 Congress largely because of the cost to transition to that plan, and the fear that investments in the public markets subjected individual retirement savings to unacceptable risk. In any case, few have since advocated investing Social Security funds in the public financial markets because of the risks and the political backlash. And adding a small amount to the FICA/SECA payroll tax rate only somewhat mitigates the problem – it doesn’t completely solve it. I’m afraid that Social Security’s financial issues are more complex than that and can’t be fully solved by a small increase in SS payroll taxes.
You are right – Congress can (and, we are confident, will) address this, and hopefully soon. For its part, AMAC (the Association of Mature American Citizens) and the AMAC Foundation have been evaluating this issue for years and have developed a Social Security reform plan for Congress to consider (see this). And we are actively promoting our reform plan in Washington, D.C. Please know that we share your concerns about the future of Social Security and will continue to work hard to ensure the program is here for many generations.
This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email us at [email protected]. Because we are a non-profit organization, all our services are free.
The question that I have is: Do these so called lawmakers actually participate in the programs they force upon us?
Do they have an elite only retirement that isn’t tied to who ever decides besides themselves?
Are politicians exempt from the restrictions that are place on ordinary citizens?
Because it seems that if they weren’t, they’d take better care of the problem they’ve forced upon us. Would exposing secret back door benefits force these taxpayer sponsored leeches to reform? Don’t count on it.
The person asking the question is wrong. We ‘contribute’ 12.4% into SSI. Folks don’t see the employers 6.2%.
I think if Congress and our government were on the same SS as their constituents they would get it figured out.
Not sure that 5 years is an accurate statement. Firstly, you need to include all the money. What the employee and employer contributed. Then you need to use Compounded interest from the years it was taken out. The 70’s and early 80’s had unbelievable interest rates of 14%. A mathemation friend did these calculations and came up with closer to 12 years.
just ask mandami how to fund it – didn’t he like find 81million to balance the new york deficit?
Social Security is a legal Ponzi Scheme. The only way it would have worked indefinitely is if the government had been prohibited from “borrowing” the funds for other expenses, and had been required to invest the revenue in conservative stock and bond funds. No one should be required to pay taxeson benefits.
Put back the moneys that went into the general fund with interest. How about all the people who die and never collect S.S. where is that money? Our government is taking us for a slay ride and telling us tuff luck your money is gone. I am afraid we are filling a lot of people’s pockets with our money.
If your SS deductions were put into a savings account or a stock market account, whichever was a bearing account for financial gain. This said account would be managed by a financial manager. That way the Gov. would not be able to get the use of the contributors money. Social Security would not become the bank for the democrats on the take.and the greedy republicans.
I have a great deal of respect for Rusty, however he’s slightly wrong in one respect. Prior to about 1980, cities were able to opt out of SS. Several cities here in Washington State did so. As the Finance Director of Marysville, I was unable to get the Council to do so, even though 85% of the employees wanted to go private. Several years later, I visited with the retired Bellevue Finance Director. I asked him how their private plan turned out. He said he was getting almost twice what he would have under SS. And their actuary showed an ever increasing profit. That private plan was identical to SS, including child and survivor payments of deceased workers. It did NOT include handouts to indigents, payments to deceased people, or any number of other SS waste!
My wife and I are both in our seventies. Yes, we collect SS, as well as a pension, and we have investment income; we are very blessed in that we don’t rely on SS. Our life expectancies are around 83, so, 9 years away. We both worked for 40 years before retirement. We will have collected SS for 20 years, but we paid into SS for 40 years. My point is this, for younger people, their life-expectancies are longer, so should the government delay when they can collect SS?
My other thought is means-testing. If people are like us, with a pension and investment income, maybe just pay seniors out what they paid into SS, PLUS interest. In that way, it is treated as an investment and not an entitlement.
I’m okay taking care of seniors in poverty via SS.
The progressive tax system in the US taxes our income at very high rates, as does California’s tax system. So, we fund the government and its welfare systems to a substantial extent every year. 53% of Americans taxpayers pay for 100% of all Federal and State Income taxes. So, 47% of American taxpayers are free-loaders. At some point, I would like 100% of all American taxpayers to contribute, even if it is a small amount. Just so they contribute.
I am hoping to see in the necessary reforms needed to keep Social Security & Medicare solvent, a method of addressing how the funds are collected, in specific, there’s a cap on which earnings levels actually contribute to the funds, which in term was made based on an assumption that those who earn higher than the cap, won’t be collecting or applying for Social Security and will have their own healthcare plans for their retirement years. Maybe remove that cap and also include earnings that are “labeled” investment since it appears that everyone expects to collect Social Security even if they are / or have income that makes them self-sufficien to not need to collect thos e benefits–like Bernie Saunders, who despite his millions, has been collecting Social Security benefits for years now., probably using the “don’t leave money on the table thinking”, especially if the money is easy to get.
I am hoping also in the reforms made that there would be a way for all employers to also offer a way for employees to save for retirement with a form of savings plan accounting iwth a account that they can transfer when changing jobs, besides the FICA tax that all income should be paying.
All I can do at this point in my life is to eliminate my debt to be able to maintain paying only necessity bills if my Social Security benefits decrease by 22% as I am not one of the top income but at the poverty level by current standards.