Monday, December 28, 2015

Do Yourself a Huge Favor In The New Year

'Oooo No! I bet there will be people
in 21st century America who think
going  to private SS accounts
won't hurt anyone either!
Tell your congressman and senator you will not vote for them until and unless they vote to improve your Social Security benefits by a factor of 10.

Or more.

Howzat you say?
'Are you now completely out of your fiscally-responsible mind? Have you gone over to the Dark Side and are now advocating a rapid rise in Social Security benefits without raising taxes to pay for it? we can hear long-term readers say.
Nope. We are not advocating for more direct benefits and higher payroll taxes to take care of all the golden geezers in their retirement days, which now includes all of the dreamy-eyed Baby Boomers who started out wanting to 'change the world' in the flower-powered '60s and such.

In some ways, they have made some change for the positive. In many ways, namely leaving tremendous debt for our children and grandchildren to pay, the Baby Boomers have been like locusts: consume everything in sight no matter what the cost will be.

Take a look at this clear-as-a-bell analysis of Social Security benefits from Jeremy Siegel, professor of finance at the University of Pennsylvania’s Wharton School, properly titled 'My Sorry Social Security Benefits'

We think if every reader of this one article would tell 10 of your friends to read it and then have 10 of their friends read it and so on, building political pressure based on common sense will start to turn the tide towards modern financial management of your assets and away from the bankrupting politics behind Social Security for the past 80+ years.

After all, it is your money, you know. Not the government's money to give to you scot-free. Every single dollar of the money now being paid into the Social Security system is deducted from your paycheck every tax payment period and then matched by your employer dollar-for-dollar to pay for current SS benefits paid out to current SS recipients.

Not 1 dollar goes into a private retirement account on Wall Street or in some bank account located in the mountains of West Virginia that has your name on it to build wealth through the miracle of compound interest and dividends over a very long time, such as your working career of say 45 years.

In the case of self-employed people, the SS contribution is doubled right out of, yes, you guessed it, your pocket which goes directly to current retirees, not a private account with your name on it as described above.

Let's look at how Professor Siegel clearly points out how every person, both rich and poor; African- Latino-, Asian- or white- American gets the shaft when it comes to getting substandard returns from the current SS system as configured:
'Last month I turned 70 and, thanks to my earnings, became entitled to Social Security’s maximum benefit, currently $3,500 a month, or $42,000 a year. And so, if I live to 90, I will receive $840,000 worth of (inflation-adjusted) benefits.
Over the past 50 years, according to the Social Security Administration, the combined taxes paid into the system by me and my employers equaled $329,640.
This sounds like a good deal—the benefits I would collect over the next 20 years are more than twice what I put in. But the benefits are only about one-third the $2.27 million I would have accumulated had the taxes instead been invested, over time, in a stock index fund.
Moreover, the benefits I would collect are even less than the $1.28 million I would have accumulated if my “contributions,” as Social Security taxes are euphemistically called, had been placed in U.S. Treasury bonds.'
It is almost as bad in Medicare:
Over the past half century, my Medicare taxes exceeded $1 million, more than three times my Social Security taxes. That’s because since 1994 there has been no cap on the income subject to Medicare taxes. I have calculated that these taxes, invested in Treasury bonds, would now have accumulated to almost $1.75 million.
I do not know the most expensive health-care coverage that I could buy at my age, but the so-called “Cadillac” coverage, upon which the government will apply a stiff surtax, is $10,200 a year. Even if I purchased super-premium, all-inclusive medical coverage that cost $20,000 or even $30,000 a year, I will never begin to make back the money that I paid the government to take care of my medical needs.
Professor Siegel wrote this from the perspective of an affluent senior who might live to age 90. But the magnitude of benefits anyone could accrue from private accounts over meager current SS benefits paid out holds true for every income-level, every race, every gender in America.

And the real kick in the rear end? ANYONE who passes away before the official retirement age today of 66 in SS has nothing to pass on to his/her spouse/partner or family or heirs as would be the case with private accounts.

The real tragedy in today's SS system is that an African-American male father, a cohort that has the lowest longevity rates of all Americans, could pass away at age 65 years, 11 months and 30 days and never receive $1 of SS benefits after 45 years of hard work and contributing (through forced payroll taxation) to the SS Trust (sic) Fund. Nor would he have a handsome nest-egg of several hundred thousand dollars to pass on to their heirs even if he had received the minimum wage for his entire work lives.

Professor Siegel points out that the federal government 'makes out like a bandit' with wealthy people by not having to pay them the true market rate of return for all of their paid SS taxes over the years.

Perhaps it is time to start calling people who 'believe' in the current SS structure and system as the modern-day equivalent of the 'Flat Earth Society' who long ago believed that western sailors would fall off the edge of the earth if they sailed to the Orient going west instead of east.

The common sense of shifting to a private account for everyone in America is so over-powering and compelling that standing up for the current system without any changes at all is just about as absurd as assuming the earth is flat nowadays.

Do something great for yourself and your children in the new year. Start telling all your friends to contact your elected representatives and senators in Washington and demand they take up legislative action to fix Social Security and Medicare once and for all by following Professor Siegel's sound financial advice.


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1 comment:

  1. This actually reminds me of a post I made a while ago, advocating roughly the same thing (minor differences around the edges): http://itsjustmyopinionicouldbewrong.blogspot.com/2009/03/how-to-fix-social-security.html

    Something something the more things change, etc.

    ReplyDelete