Social Security

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According to the Social Security Act, "the purpose of Social Security is to provide insured persons with payments by way of a retirement benefit, survivors benefit, sickness benefit, and to substitute for compensation under the Workmen's Compensation Ordinance, a system of insurance against injury or death caused by accident arising out of and in the course of employment." In order to finance social security, a Social Security Fund was established, financed by contributions made by the workers and their employers. All benefits, administrative expenses, and capital expenditures are paid out from the Fund.

But according to government figures, "while Social Security takes in more than it spends right now, the situation reverses when the baby boom generation (those born between 1946 and 1964) begins to retire in 2010. Unless the system is overhauled, Social Security by 2013 will be spending more than it collects in taxes and will be broke by 2032."

I will be 69 years old in 2032. I will have paid a very large percentage of my income into a government plan and will have nothing to show for it. Accordingly, Social Security payroll deductions should end for anyone born in 1965 or later and be shifted to a 401(K) plan so they will reap the rewards of their investment when they retire. Those born in 1964 and before should continue some Social Security payroll deduction along with some government subsidy to cover the difference.

With all this talk of tax refunds fueled by a government surplus coupled with the enormous corporate tax breaks given out by our government, I am sure we could find enough money to subsidize a transition plan to save our retirement money.

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Wow Joe, you hit right square in the middle of the political persuasions on this board.....the libertarian/conservative theory that privatized social security is feasible versus the anti tax cut/anti corporation crowd.

But welcome to A2K. The more the merrier.

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I don't know what the remedy is, except that, if you're not pretty wealthy, you are paying a much larger percentage of your earnings into social security than the wealthy are, because it's capped after a certain amount. (I believe it's $87,000).
So, one fix could be that the richer pay more, or actually, the same, percentage-wise, or that those who really don't need it, don't take it.
The problem with 401K's is the risk of losing it all.
The very wealthy who support that idea don't have to worry about losing some, they've got plenty more holdings to fall back on. The average Joe doesn't. And there's the rub.

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JoeB, Welcome to A2K. You seem to understand what the financial pundits have been saying about the social security fund and its future. Having this knowledge is a powerful tool, because it means you're still young enough to plan ahead for your retirement future. Start saving from 15 to 20 percent of your income in your company 401K plan. Make sure the investments are not 100 invested in your own company, but rather in a broad spectrum of mutual funds. Continue to educate yourself about how to invest and allocate your investments. Just stick with a regular investment program that cost averages your equity purchases, and don't ever try to time your investments - it can't be done (I've watched the market for over 25 years). Good luck.

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The thing is, if a worker at 21 years old or so should invest 10% or so of his social security benefits in the most conservative of investments, given the track record of the market over the last 45 years, by the time that worker retired he could have hundreds of thousands more in retirement than he would receive under the current social security system, not to mention the system itself would be far more solvent than it is now. If he lost it all, the average worker would be losing about $100 or so in monthly benefits.

If I had had that option, you can bet your bottom dollar I would have taken the small risk involved.

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Only invest in a 401k up to the point that your employer matchs your investment dollar for dollar.

Put the rest in a rothIRA, you can put 3000 in a rothIRA per year without having to pay taxes on it's earnings when you take it out.

It's an incredible deal.

Invest your rothIRA in a diverse no load mutual fund. You'll probably make around 9% an year or so.

If you have 25 years or so left, you can retire a millionaire.

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Suzy - the risk of losing it all in 401Ks in much smaller than the knowing that social security is spending more now than what it is collecting. The only way that a 401K is risking is if you put all your eggs in one basket. The majority of people investing in 401Ks are investing in a variety of mutual funds. If you follow a basic investment plan, that shows percentages of which types of funds you should invest in over time depending on your age, the risk is minimal with much larger returns as a result of reinvesting and tax advantages. In addition, many companies offer matching your 401K contributions that is like free money. Right there depending on the company benefit, you could double your money.

Only those individuals who put all their retirement funds into one vehicle, like many employees of Enron did, are they are high risk. A better tactic would be to educate employees on the most advantageous way to invest your 401K. It was ignorance on the part of employees and greed of the executives of companies like Enron that caused employees to lose their retirement money.

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Quote:

I don't know what the remedy is, except that, if you're not pretty wealthy, you are paying a much larger percentage of your earnings into social security than the wealthy are, because it's capped after a certain amount.

The other part of this is that there is a cap on what Social Security pays out.

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Centroles wrote:

Only invest in a 401k up to the point that your employer matchs your investment dollar for dollar.

Put the rest in a rothIRA, you can put 3000 in a rothIRA per year without having to pay taxes on it's earnings when you take it out.

It's an incredible deal.

The "ideal" as recommended by pretty much every investment advisor out there is to put the 15%-20% of your income that c.i. mentioned into retirement savings. For a large % of the population that means more than the $3000 IRA contribution and the amount your employer matches (if they match any). In most cases the 401K is preferrable to the Roth IRA because you don't pay any income taxes on 401K contribution amount in the current year.

The Roth IRAs can be useful but they aren't always the best strategy. In a situation as described here, you'd most likely be forced to save a set amount towards retirement if private investment were to replace Social Security. That eliminates one of the major arguments in favor of the Roth IRA.

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Re: Social Security

JOEBIALEK wrote:

But according to government figures, "while Social Security takes in more than it spends right now, the situation reverses when the baby boom generation (those born between 1946 and 1964) begins to retire in 2010. Unless the system is overhauled, Social Security by 2013 will be spending more than it collects in taxes and will be broke by 2032."

That is a scare story peddled by Republican propagandists. Like many scare stories, it has a measure of truth in it but the true part is being exaggerated to the point of fantasy. Yes, if Social Security benefits and payroll taxes stay at their current level, the figures you cite are correct. But that's like telling a driver going 35 mph in the city: "You'll run over that red traffic light unless you overhaul your driving habits". No you won't. You'll step on the break before that happens.

And no, Social Security won't go broke either, as long as Congress wants to keep it alive. To ensure that, it will either raise payroll taxes, reduce benefits, find funding elsewhere in the federal budget, or do some combination thereof. This will be painful, but every alternative system proposed so far has the same problem.

A minority of honest libertarians and conservatives are making a good case that Social Security be privatized for other reasons. Briefly, the advantage of privatization is that it would replace unenforcable government promises with well-defined, enforcable property rights. In my opinion, the solution is better than the current system but definitely non-magic. Milton Friedman has outlined it here.

But the current scare stories peddled by conservative pundids have nothing to do with this honest case. They're just plain irresponsible.

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There's some truth to what Thomas says about scare tactics, but it still requires some personal savings on top of social secrity to live in the manner you wish to retire. Most financial pundits say you must have between 70 and 80 percent to live in the same lifestyle you did before retirement. Social Security will cover only a small portion of that requirement. Do your math; then start saving. c.i.

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In either case, whether social security goes bankrupt or not, I would still highly suggest investing heavily in 401Ks and other retirement vehicles. Social security is a fixed amount and what you end up getting usually is not enough to live on, unless you live extremely frugally. No vacation type retirements if you plan on relying solely on social security in your golden years.

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Call Social Security what it is. Highway Robberry at the hands of your own government. Shameful.

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you don't have to pay taxes on the rothIRA when you take it out. And you don't have to pay taxes on the capital gains the money makes

This alone makes it an incredible deal.

I currently have $6000 in my rothIRA and 45 years till retirement.

If I get around the avearge 9% return on my investment that mutual funds offer and continue to file my rothIRA till retirement, I'll have over 4 MILLION dollars when I retire. And all of it will be tax proof. Even taking inflation into account, I could easily live on the interest made from that for the rest of my life very luxuriously as a matter of fact.

I would certainly recommend investing in the 401k up to the point your employer matches you, maxing out on your rothIRA for the year ($3000) and then putting the remainder in a 401k.

Without employer matching, rothIRA is almost certainly the better option.

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Centroles, My only suggestion to you is to project your retirement fund on the conservative side, and make sure that the future inflation doesn't make your projection overly optimistic.

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Quote:

So, one fix could be that the richer pay more, or actually, the same, percentage-wise, or that those who really don't need it, don't take it.
The problem with 401K's is the risk of losing it all.
The very wealthy who support that idea don't have to worry about losing some, they've got plenty more holdings to fall back on. The average Joe doesn't. And there's the rub.

So you are saying that since I won't need social security I shouldn't take it, even though for 40 plus years I pay in to it?

That is ludicrous. If that were truly the case then those who are very wealthy and won't need it shouldn't have to pay in to it. Why should they have to put in their hard earned money to something they will never with draw from. I understand that we have to pay the piper if we want to dance, but saying the rich should pay even more because they won't need it? That is a very typical liberal politician statement. But guess what. They are all rich too and don't want to have to pay anymore then they already are.

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suzy wrote:

The problem with 401K's is the risk of losing it all.

I disagree. As I understand it, you get to choose what to invest your 401K in. If you choose to invest in inflation-indexed Treasury Bonds, your risk of losing it all is as low as the federal government defaulting on its debt. That risk, in turn, is probably lower than the risk of the federal government defaulting on at least some of its implicit Social Security debt.

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Quote:

That is a scare story peddled by Republican propagandists. Like many scare stories, it has a measure of truth in it but the true part is being exaggerated to the point of fantasy. Yes, if Social Security benefits and payroll taxes stay at their current level, the figures you cite are correct. But that's like telling a driver going 35 mph in the city: "You'll run over that red traffic light unless you overhaul your driving habits". No you won't. You'll step on the break before that happens.

The social security administration tells me that by 2041 (I think) I will be receiving $.70 in the $1.00 of my benefits. I will need to look up the date after I get home. I would like to have some say in where it goes. There are major problems in the system; I would rather trust my ability to choose a place for my retirement.

Quote:

The "ideal" as recommended by pretty much every investment advisor out there is to put the 15%-20% of your income that c.i. mentioned into retirement savings. For a large % of the population that means more than the $3000 IRA contribution and the amount your employer matches (if they match any). In most cases the 401K is preferrable to the Roth IRA because you don't pay any income taxes on 401K contribution amount in the current year.

Do you relies that you are suggesting tying up 30% to 35% (If I went into business for my self it would go up to 45% to 50%) of my income in retirement? That is more than some can afford, and continue to live where I am. I am not talking about partying, and vacations, for me it is privet school, property tax, and mortgage, insurance. I do not have that much to spare. If I went into business for my self it would go up to 45% to 50%

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emclean wrote:

Quote:
The "ideal" as recommended by pretty much every investment advisor out there is to put the 15%-20% of your income that c.i. mentioned into retirement savings. For a large % of the population that means more than the $3000 IRA contribution and the amount your employer matches (if they match any). In most cases the 401K is preferrable to the Roth IRA because you don't pay any income taxes on 401K contribution amount in the current year.

Do you relies that you are suggesting tying up 30% to 35% (If I went into business for my self it would go up to 45% to 50%) of my income in retirement? That is more than some can afford, and continue to live where I am.

I have absolutely no idea how you could possibily read "The "ideal" as recommended by pretty much every investment advisor out there is to put the 15%-20% of your income" and come up with that tying up 30-35% of your income.

Care to explain your math there?

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how much do you pay in to social security administration? i think it is 15%, 30% if self employed.

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