Friday, February 11, 2005

Your Pal Mike Responds - Question #3

These posts are a series that started with this post. Questions are still being accepted, feel free to ask one yourself.

Question: Here's something really boring, but I've been meaning to research it but have been too lazy to bother. So what's the deal with social security? They've been saying it's going to run out for years now so should I really be concerned (I'm 24) or is everyone simply blowing a bunch of smoke up my ass?

Tough question, Rebecca!

Your Pal Mike responds:

Whether you view Social Security as a problem or crises depends mostly on where you sit on the political fence. The word ‘crises’ is probably too strong a word, although it is a real issue that needs addressing.

First, how does the current system work? Social Security is mainly a pay-as-you-go system. Social Security taxes are taken out of your paycheck and used to pay the benefits of the current batch of retirees. Currently, there is a surplus held in the US Treasury, but by 2018, payroll taxes alone will not cover the amount of benefits required to pay out, and thus the surplus will need to be tapped. Depending on whose report you read, sometime between 2042 and 2052 this surplus will be depleted. At this point, payroll taxes alone will only cover around 75% of the obligations.

Blame the Baby Boomers and an increased life expectancy for this.

A person of the age of twenty-four (read as: you) can expect to retire around 2050, assuming the retirement age isn’t increased (it will be). Even with an increased retirement age, this would put you right smack in the middle of the reduced benefits stage of Social Security – assuming nothing is done to fix it. There are many ways to fix it, raising the retirement age is one, increasing the amount of wages that are subject to Social Security tax is another (right now only the first $90,000 is taxed by Social Security). Most likely it will be a combination of these and other options – possibly personal retirement accounts.

The US is not a trail blazer in this area. Many counties do quite well offering their citizens privatized Social Security. Chili, Great Britain, and Sweden are among the many countries that offer some type of individual retirement account.

Because of the fear-mongering that will take place over Social Security reform (read as: AARP-induced elderly foaming at the mouth – and at the voting booth) Bush’s reform plan will probably fail. From a selfish standpoint, I hope it doesn’t. Those of us willing to take the step will have a better retirement for it.

Now Medicare, that's a crisis....


At 12:55 PM, Blogger Rebecca said...

Thanks Mike!


Post a Comment

<< Home