7/27/2011 12:09 PM ET|
5 myths about Social Security
Everyone knows there are financial difficulties with the Social Security system, but misinformation and falsehoods are obscuring the problem and what needs to be done.
If you want to know the truth about Social Security, don't ask a politician or a pundit.
There's just too much misinformation floating around about the retirement system, and it's coming from both sides of the political spectrum. Some on the left claim that everything is just dandy and no major changes need to be made, which is hogwash. Some on the right claim the system is irreparable, which is hooey as well.
Stranded in between are the confused millions who contribute to and benefit from the system. They just want to know if Social Security will be there for them when they need it.
The answer is yes, if the politicians can ever get their acts together.
Here are five big myths about the system that are getting in the way of getting things done:
Myth No. 1: Social Security won't exist when I retire.
Those who want to dismantle Social Security often suggest it's about to collapse into rubble. That false assessment is one of the reasons so many people are convinced the system won't be there when they need it.
It's true that Social Security's finances need fixing. Without changes, the system will be able to pay only 75% of promised benefits after 2037.
But the system doesn't need radical changes to restore its financing to solid ground. The bipartisan Debt Reduction Task Force, headed by former Republican Sen. Pete Domenici of New Mexico and Democrat Alice Rivlin, a former director of the Congressional Budget Office, suggested several repairs:
- Gradually increase the full retirement age to reflect improvements in longevity.
- Change to a different measure of inflation that grows more slowly to calculate cost-of-living increases.
- Slightly reduce the growth in benefits for the top 25% of wage earners.
- Boost the amount of earnings subject to the payroll tax over time.
- Bring newly hired state and local government workers into the system.
These aren't the only changes that could be made. An immediate 1.8% payroll tax hike or a 12% overall benefit cut would also work (.pdf file). But a combination of smaller benefit cuts and tax increases may be the most reasonable, not to mention politically palatable, way of restoring the system to a strong financial footing. You can try coming up with your own solutions at the American Academy of Actuaries' Social Security Game site.
Myth No. 2: The trust fund assets are worthless.
Yes, Virginia, the Social Security trust fund actually exists. But it doesn't contain a big pile of cash.
Over the years, the surplus has been lent to the federal government to pay for other programs. In return, the trust fund received IOUs in the form of special-issue, interest-paying Treasury bonds. These bonds are backed by the full faith and credit of the U.S. government, just as regular Treasurys are.
The trust fund has worked this way since its inception in 1939, by the way. Congress didn't place the fund "off limits" at one point and then later decide to raid it, despite hoax email assertions to the contrary.
The tricky part, and the reason some have dismissed the trust fund as an accounting fiction, is that the Treasury needs to come up with the money to make good the bonds when it's time to cash them in. This cash has to come from somewhere: increased taxes, reductions in other spending or additional borrowing. Although the trust fund assets aren't scheduled to be depleted for another 26 years, this need for the Treasury to redeem the bonds will put pressures on the federal budget well before 2037, according to the Social Security Administration's board of trustees.
Myth No. 3: Congress doesn't pay into Social Security, so it doesn't care about fixing the crisis.
U.S. lawmakers used to be exempt from the Social Security system. But that changed in 1984, when all federal employees, including members of Congress, were added to the Social Security system.
This myth is often accompanied by another fiction: that members of Congress participate in a lavish, exclusive pension scheme that guarantees 100% of their salaries for life, even if they serve only one term.
The truth isn't quite so juicy. Congressional lawmakers contribute to, and benefit from, pension programs that cover all federal workers. Before 1984, Congress and other federal employees were covered by the Civil Service Retirement System. Workers and lawmakers hired since then are covered by the Federal Employees Retirement System.
The pensions under either system depend on the federal worker's pay and how long he or she worked for the government. By law, the pension can't exceed 80% of the employee's pay in his or her last year on the job. Benefits paid under the system are reduced by the amount of Social Security a participant receives.
VIDEO ON MSN MONEY
Let every Federal and State worker pay into SS like the rest of us and collect the same amount that we all do. I have heard that many government workers save vacation and sick time until their final work years and then cash it in. This inflates their salaries and conversely their retirement benefits.
"Illegal immigrants contribute billions of dollars according to Social Security's chief actuary, Stephen Goss. Over the past few decades, the net positive contribution totals somewhere between $120 billion and $240 billion."
It's no wonder Congress and the Administrations past and present keep dancing the Salsa around the illegal immigration issue besides the potential votes and campaign donations. With the added revenue towards SS, they can steal even more from the general fund (National ATM) and leave their worthless IOU's as collateral.
Then blame the expected cash shortfall on retiring baby boomers along with everything and everyone else except their own thieving multi $trillion Ponzi scheme.
You do have to wonder about the SS numbers being used by illegals. Does anyone including government and or employers even care?
once again liz is wrapped up in fantasy land and half truths and pretty much a shill for the good ol boy/govt network
i really was amazed that she didnt go off on the tout about if you delay taking ssi till you get full eligibility '66' you get more money instead of taking it as soon as you can '62' thats the biggest lie goin now
while if you delay till your 66 you will get a bigger check but you get more money IN YOUR POCKET now by takin it early. the dollar for dollar difference equals out if you hit 78
While you're minimizing the number of criminals (i.e. illegal aliens) who receive SS benefits, why don't you accurately describe how many criminals contribute? Most criminals do not contribute. They work for cash because it's illegal for employers to hire them.
Not sure why, if s/he is such a payroll expert, that s/he would not state that, rather than leaving readers with the implication that I was completely wrong and that the 4.2% rate is permanent. Nor do I understand why s/he would state the BS about the matching 6.2% being paid by employers - it's all part of the employee's compensation package that represents the cost of the employee to the employer. In theory, if the employer wasn't paying that directly to the gov, the employee's wages would increase by that much.
I expect that s/he is either naive, a propagandist like the author of this article, a Democrat who believes in "wealth distribution," or all of the above.
Just because you apply for ss, ssi, ssdi it does not mean you will get it. You will prove who you are and your citizenship before you get a dime...... I went through this with my husband. Trust me the government does not want to "give" you anything. I
Will some people get lucky and catch a case worker slipping? Sure! but that is few and far between. In this case yeah, illegal immigrants do "contribute"
Actually, as an employer and someone who does payroll....the current employee portion of FICA is 4.2 up to $106,800 and FICAMed is 1.45 without a limit. The current employer portion of FICA is 6.2 up to $106,800, and FICAmed is the same. The employer pays the matching portion, not the employee. So for 2011, the employer pays MORE in FICA taxes than its employees do.
I found this article balanced. Raising the FICA limit is an option as is a slight increase in the FICAMed percentage. Also, if people are expected to work into their seventies there are problems: finding a job or holding onto one after your 50's is becoming difficult; if the workers at the top of the food chain don't retire, those workers on lower rungs can't move up into more lucrative, more challenging positions--everyone stays where they are. If you want the C suite and it's already occupied, where are you going to go?
Reasonable fixes are out there if reasonable people pursue them. And finally, it's really better if you can earn your living from interest or investments, paying the capital gains taxes instead of all the payroll taxes that come with earning a regular paycheck.
I wonder if Liz would advise anyone to put 13.5% every year into an insurance fund voluntarily for their entire lives. What would she say to the insurance company if they changed the condition and reduced your annuity and/or the age when you could collect. Some how when the Fed does it is okay.
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Financial Information.
RECENT ARTICLES ON RETIREMENT
Children from lower income families are at greater risk of suffering accidental injuries and being sickened by food, according to a Consumer Federation of America study.