Social Security trap...

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


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The following story appeared on deseretnews.com on March 08, 1999, 12:00 AM MST

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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.

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Copyright 1999, Deseret News Publishing Co.




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