Go to Jeff Salisbury LWGate Home Page.From: "Jeff Salisbury" <jeff@csd.sdl.usu.edu>
Subject: Social Security trap...
Date: Wed, 10 Mar 1999 11:30:34 -0700
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Greetings, I read an article last night in my local newspaper on Social Security -- I thought it was outstanding. The basic points of the article were: 1. Every American pays 12.4% of their annual wages (the first $68,400) into the Social Security system. 2. The return on this "investment" is pathetic. 3. Because many Americans are unable to save/invest sufficiently beyond this 12.4%, and because the Social Security benefits are so meager, they will be trapped into a poverty level retirement. While I believe this article is right on target, I am aware of the dilemma of scrapping the current system. How can we make the transition without leaving the people already trapped out in the cold? Perhaps this is another example of governmental good intentions gone awry... I've included the full text of the article below... Best Regards, Jeff Salisbury ################################################################## The following story appeared on deseretnews.com on March 08, 1999, 12:00 AM MST ======== Headline: Stop the Social Security poverty machine Author: By James Ferrin Before we clamor to "save" Social Security, let's first understand what we are trying to "save." The Social Security retirement system requires every working American to pay 12.4 percent of his or her income into the system. The 12.4 percent is a tax on compensation -- wages or business profits. It is a nearly invisible tax to most Americans because one-half is withheld from the paycheck and one-half is paid by the employer with funds that could have been, but weren't, paid to the employee. The Social Security tax is not reported or itemized on the tax return for anyone but the self-employed. In this sense it is an enormous but somewhat invisible tax. In exchange, the worker receives a hope for a retirement cash flow starting at age 62, or 65 or sometime; the dates are subject to change. Today's retirees can collect "normal" benefits at age 65. Under rules adopted in 1981, those of us born after 1938 (including close to 80 million baby boomers) will qualify for benefits at a later age. The Social Security Administration recently notified me that under current rules, because I was born in 1956 (right in the middle of all those baby boomers) I can currently hope to qualify for normal benefits at age 66 and four months. Do you know how much Social Security retirement tax you paid last year? I think most people have very little idea. Take 12.4 percent of your earned income (like wages) to a maximum wage base of $68,400. Anybody making $68,400 or more last year paid $8,109 in Social Security retirement tax -- not federal or state income tax -- that's extra. I'm talking about over $675 per month just in Social Security retirement tax. This is a fairly significant monthly investment. In fact, the unfortunate reality for many Americans is that it is the only monthly investment they can make. After paying it, along with all the other taxes and living expenses, there is precious little left over for saving and investing for retirement. Most working-class Americans live paycheck to paycheck, unable to save and invest over and above what Social Security takes. So, predictably, we produce yet another generation dependent on Social Security. How about that Social Security retirement? Yes sir, can't you just wait till those nice, fat Social Security checks start rolling in? We instantly recognize, of course, the sarcasm. The fact is that Social Security offers only a poverty-level subsistence. Today's highest monthly benefit is about $1,200 per month. The average monthly benefit is just over $700. Is this a livable income or is this poverty? The Social Security Administration projects that if I am fortunate enough to live another 24 years, paying over $700 per month into their system, that I will qualify for a retirement income of $1,630 per month. How fortunate I am that I am able to save and invest my own funds over and above what the Social Security tax confiscates from me, because living on $1,630 per month 24 years from now will be poverty-level misery. But what about the millions of Americans who are not able to actively save and invest, those who pay 12.4 percent of their income in Social Security tax and have little or nothing more to invest? The answer is clear. They will be poverty stricken old folks fully dependent on government, and they will have paid 12.4 percent of their income every month and every year throughout their working lives to get there. I can only think to call it the Great American Poverty Machine, for so it is. No, we should not attempt to "save" such a system. We ought not even wish it upon our worst enemies, much less on ourselves, our children and grandchildren. We should not hope that Social Security will "be there" for us or for them. We should hope and pray that American politicians will end the politics and socialization of America's precious, sacred investment capital and will end Social Security as we know it. Working-class Americans, the poor, the middle classes, these folks are the ones most hurt by the Social Security poverty machine because they cannot escape it like higher income earners can. These traditional constituencies of the Democratic Party ought to be screaming to their representatives not to "save" the system, but to replace it -- replace it with a fully privatized Individual Retirement Account. Democrats and Republicans alike should be united to eliminate the old system in favor of a completely new privatized retirement program. Let Americans save and invest their own hard-earned money without government interference. Anyone who really saves and invests 12.4 percent of their income can, over their working lifetimes, make themselves financially independent millionaire retirees, not poverty-stricken elderly of the "Social Security class," regardless of the job they choose. Social Security is, in fact, the single tallest, most difficult hurdle standing between most working-class Americans and their hopes for security in their senior years. Let's recognize this fact, and let's end it now. James Ferrin is a certified financial planner based in Orem. - ---------- Copyright 1999, Deseret News Publishing Co. - -
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