7/27/2011 12:09 PM ET|
5 myths about Social Security
The rest of us would love to have a pension that pays 80% of our final pay, but the reality is that few federal workers, including lawmakers, will get that much. They simply won't participate in the system long enough. The average monthly benefit payment for federal workers is a bit more than $2,200, according to the U.S. Office of Personnel Management.
The reason Congress hasn't fixed the Social Security crisis is not indifference. It's politics. The most likely solutions all face strong opposition. If Social Security is going to get repaired, your lawmakers need to hear from you that you want it done, even if it means some difficult or unpopular changes.
Myth No. 4: Illegal immigrants are draining the system.
The U.S. has a serious illegal-immigration problem. More than 11 million people -- about 4% of the total U.S. population -- are living here without authorization.
This undocumented population has a heavy impact on schools and the health care system, among other things. But its effect on Social Security is actually positive. Illegal immigrants contribute billions of dollars a year, 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.
In other words, Social Security would be in worse shape than it already is without illegal immigration.
Undocumented workers pay taxes into the system under stolen Social Security numbers but rarely try to collect benefits, since they're not legally entitled to them. Some apply illegally, of course, and Goss estimates that such fraud costs the system about $1 billion a year, far less than what other illegal immigrants pay in.
To put the fraud into perspective: The Social Security system sends out $59 billion in checks every month, or more than $700 billion a year.
What's really causing Social Security's financial crunch is simple demographics: fewer workers supporting more retirees and other beneficiaries.
By the way, there's another, much larger group that doesn't benefit from its contributions to the system. This group includes married working women who make less than their husbands.
Married people can claim benefits based on their own work histories, or they can opt to get essentially half of their spouse's benefit. (You have to choose; you can't claim both at the same time.) So if your spouse's benefit is $1,000 a month, you would get a spousal check of $500.
That smaller spousal check is still greater than what many working women would qualify for, based on just their own work histories. And this spousal benefit is the same whether or not they worked. So these women get no benefit from all the payroll taxes they've contributed to the Social Security system.
Men can face the same situation if they're married to high earners. But typically it's women who are affected, since they usually earn less and have work histories that are often interrupted (as they stay home to care for kids or aging parents, for example).
Myth No. 5: I could earn better investment returns on my own.
Perhaps you could, but Social Security isn't an investment program. It's insurance, designed to insulate you against poverty in your old age.
Social Security is meant to provide you with a steady check in retirement that you can't outlive or lose in a stock market downturn. Many people wind up needing that income: Social Security provides the majority of income for more than half of people aged 65 or over. It makes up 90% or more of income for 43% of singles and 22% of married couples.
If you want an investment program that allows you to take your chances -- well, you've got that. You can (and should) invest through workplace plans like 401k's or on your own through individual retirement accounts and taxable accounts.
But all the evidence so far suggests that most people do a truly bad job of managing their retirement funds. They start too late, save too little and cash out when they leave jobs. They borrow against their savings or tap it for other expenses. They take too little or too much risk, hiding their money in cash accounts or overdosing on company stock, for example. They fail to rebalance their asset allocation. Some panic and sell in downturns rather than hanging on.
You may well be the exception. Even if you are, you may still be glad to have Social Security -- rather than yourself -- supporting parents and other relatives who didn't do as good a job providing for their last years. And if it turns out you're not the investing genius you think you are, you'll still have Social Security to fall back on.
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
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I recently went to apply for SS. I was overwhelmed by the number of people from India sitting in the waiting room, old and young alike. There were more of them than americans sitting there. Out of curosity, I want to know if they are there to COLLECT from our SS system. if they have not ever contributed any money to help support SS, how are they entitled to get SS funding? If we in fact, are having a problem worrying about SS being around for the working folks, soon retiring, how long can SS last if our government is just giving this money away to non-contributors? It's not clear to me, is our government juat GIVING away our SS funds? I would appreciate any clarification I can get on this issue.
The "cost of living" index, that is currently being used, is already far off the mark--Food, Medicine, Gas and Electricity should be weighted at 80%--not the current 8%. Most people on Social Security aren't concerned that the price of a 102' yacht hasn't gone up in the last 8 years. Typical government accounting.
It’s amazing that the cure for the social security problem comes to either cutting back on what you receive when you retire or raising the age you can retire and let’s not forget raising what we pay into the program. Social security would have been fine if the government had not stolen from it to use in other programs. What needs to happen is the government needs to return the funds that they stole from the program and cut back on the foreign aid instead. They would then accomplish one major thing and that is to help the people that they are suppose to be representing.
what about those people that come from abroad and are petitioned by their siblings and have affidavit of support..then when they become 'citizens', their entitled to SSI benefits without ever contributing or never even worked to contribute and get free health benefits to top it off...where did this come from???
Pilot (in case you missed this first part from my last post),
Can anybody on your side make any argument without resorting to name-calling (i.e.- Obamabots and Nanny Pelosi)? Just because we may not agree does not mean that you are fit to demean others. As a matter of fact I would suggest that it makes your argument less valid. By the way, the Republicans forced an extension of the Bush tax cuts. Tax cuts are the key to job creation according to Republicans. Where are the jobs?
Additionally Pilot, because of your post I did a little reading and I am not a Marxist but you may want to go back and read Karl Marx again. His criticism of capitalism is being proven to be correct by your party. Cloaked as the champions of capitalism they are destroying it. And we’re the hypocrites? Very sad!
It amazes me to see the comments, did you people not read the article, or just jump in and start complaining? You use this as a forum for some long lost cause or gripe that you have about something, and as a result, we get the same stagnant merry-go-round of senseless opinions about all sorts of cockymammy issues. I have heard so many times from so many people all of these topics being battered around, and most people have had the impressions that are being pointed out as wrong, and even if it is pointed out that they are wrong, they don't want to accept the truth because it doesn't make as good of a splash when they throw it against the wall. The majority of people in this good old USA are good, hard working, truthful people who have the same goals and hopes as you all do. They are not working to bury you or do you in. You have been listening to the news too long. It is their job to stir things up, period. If it isn't controversial, you won't listen to it. If it isn't some sports star making a ridiculous salary or some would be singing star or movie star showing their butt, people would turn it off.
So please, look the facts over in this article and start spreading them around, instead of the sensationalism that is being talked about. There is no guaranty that we are going to continue to be a great country, it will be determined by us, the common people. Wake up and smell the roses.
I started collecting SS at 62. I have my check direct deposit in our bank, Then I have the full amount of my check invested monthly in several high quality, high dividend paying stocks along with full dividend re-investments. My plan is to keep doing this until at least my full retirement age of 66 2/3. Not taking into account the possibility of any capital appreciation I should be further ahead in monthly income. Plus I have the option of any type of lump or partial sum withdrawal if I decide to do this. Also because the stocks I chose have an excellent, long history for both increasing dividends and capital appreciation I feel confident this is the right path for me.
I realize this plan would not work for everyone but it seems to be working out well for me so far.
ss would never run out of money if our government and so called leaders would quit paying for wars and giving the money away to foreign countries. we need to let the rest of the world take care of their own self. quit fighting wars we can not win. you cant fight religious wars it does not going to ever quit. open yours eyes america get off your asses and take care of america.
I can live with any of the reforms suggested in the article.
The one that I am concerned about is raising the retirement age. It's hard enough to stay employed after 60 because of built-in age discrimination (don't tell me it's illegal, I know).
Companies have ways of putting pressure on older workers to get rid of them and so do government jobs. If you're a middle class worker, you will go through the discrimination.
"Over the years, the surplus has been lent to the federal government to pay for other programs."
Well that was obviously illegal as the SS Trust Fund was set up to be used ONLY to cover social security benefits for retirees, yet the politicians (the same ones that are now trying to destroy SS) did indeed raid the trust fund in order to fund their pork spending programs and to cover federal deficits. That money should NEVER have been touched.
What they did was basically destroy the system and now instead of fixing the problem by putting the money they stole back into the trust fund, they're expecting seniors to give up their benefits. It's a total disgrace and we should not tolerate it.
So the author of this article is obviously either grossly misinformed OR he's trying to cover up the truth, more than likely the latter. What has to be done is for the American voters to throw out the bums that raided and depleted the trust fund and replace them with ones that are committed to restoring the Trust Fund.
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