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Don’t Count On Social Security For Your Retirement

By Erik Folgate

If you’re in your 40′s, 50′s, or 60′s, you’ll probably see the full social security benefits promised to you when you paid into the system throughout your working career. This article from CNN Money via Yahoo Finance, talks about the report that was released this week that Social Security funds will be tapped out by 2041 if it is not reformed.

So, that means that if you’re in your 20′s or 30′s, you’ll be funding social security for your parents, but you won’t get jack squat back when it’s your time to retire. The article goes on to talk about what the three presidential candidates would do to help reform the social security system. Here are the quotes from the article.

Clinton, for instance, has pledged to stop the practice of the federal government borrowing the surplus paid into Social Security. That’s a noble idea, said Bixby, but difficult to achieve because the government relies on the money. In addition, it doesn’t address the longer-term shortfalls. Clinton also has indicated that she would not favor eliminating the cap on the amount of income subject to the Social Security tax. Currently, the first $102,000 of wages are subject to the 12.4% payroll tax. Typically, half the tax is paid by workers, and the other half is paid by employers.

Okay, why is this wishful thinking? Why can’t the government keep their grubby hands off of our money that is PLEDGED for a certain reason! They wouldn’t need to “rely” on the money if they were more fiscally conservative with spending, and that goes for both Democrats and Republicans. Also, some of this is creative writing trying to mask the fact that she’s going to raise taxes to help fund Social Security.

Obama, meanwhile, has said he wouldn’t favor increasing the retirement age or cutting benefits, but he would consider increasing the amount of wages subject to the payroll tax. He would favor doing so by subjecting all wage income to the payroll tax with the exception of income that falls within what’s called a “donut.” A donut protects a certain portion of income (e.g., between $100,000 and $200,000) from the payroll tax and could be phased in over decades.

Again, this is political speak which means he’s going to raise some sort of tax that looks like it will only affect the rich, but it will end up affecting the middle class as well. I don’t think creatively raising taxes is the answer.

McCain has said his preference is to shore up funding by reducing growth in benefits without raising taxes. But just how that’s done isn’t clear. Unlike his Democratic rivals, McCain has expressed support for individual investment accounts as a way to augment Social Security benefits. But his campaign has indicated he no longer favors diverting payroll taxes from Social Security to fund those accounts – a centerpiece of President Bush’s Social Security reform proposal.

He’s the only one that flat out said he’s not going to raise taxes, but I don’t think he’s got any clue how he’s going to get the privately funded retirement accounts approved with a Democratic Congress.

Young people, stop caring about whether Social Security will be there for you.

You’ve got 30 to 40 years to fund your own retirement and become a millionaire if you sock away enough money each year and invest wisely. It burns me and I’m sure it burns you knowing that you get 12% taken from your hard-earned money, but all you can do is lobby to your congress person to push towards privatizing the money, so you can ACTUALLY get back what you put into it. But seriously, don’t lose sleep over it.

The Solution:

The solution is complicated, because it’s the battle between older people and younger people. People in their 50′s and 60′s don’t want social security to be privatized, because they don’t have enough time to put away enough money, and they don’t want to be penalized for not privately funding their own retirement. I am ASSUMING that most young people in their 20′s and 30′s would support privatizing social security or even having the option to opt out of contributing to it in return for not receiving any benefits from the government at retirement. But, we know that this won’t be an option because they need our income just to fund it until 2041. I think the best solution would be to offer those less than 40 years old to put a portion of their contributions to a private, interest-bearing account and the rest would continue to fund the benefits for the Baby Boomers. Then, put a timetable in place to phase out the current system and make it an optional contribution similar to a 401(k) plan, but instead sponsored by the government. For those older than 40 years old, you continue to employ the same system and seek to generate more income for the program by accumulating a budget surplus and creating legislation that the Legislative Branch needs Judicial AND Executive approval to borrow from the account.

If we can find a body of legislators and a president who make it their priority to eliminate the federal deficit and create a budget surplus, we can invest that surplus into domestic and foreign markets to generate a wealth of income that could go towards funding Social Security. We have almost 10 trillion dollars in federal debt, and we spend $400 billion dollars in interest per year! What if we could generate $400 billion dollars of interest income per year? This can be a reality. Don’t write it off like the guy in this article like it could never happen. Email or phone your Congress representative to get things done in this country. It’s our country, not their country. It’s time for the United States to have a savings account and stop swimming in debt.

Erik Folgate
Erik and his wife, Lindzee, live in Orlando, Florida with a baby boy on the way. Erik works as an account manager for a marketing company, and considers counseling friends, family and the readers of Money Crashers his personal ministry to others. Erik became passionate about personal finance and helping others make wise financial decisions after racking up over $20k in credit card and student loan debt within the first two years of college.

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