Are You Relying on Social Security?

by James & Miel on August 28, 2008 · 0 comments

To rely on Social Security or not, that is the question….

While news these days is all about the political conventions in Denver, Social Security will eventually come up as a political issue that needs to be handled.

I came to thinking about this subject again when I did a couple of scenarios on a retirement calculator, about how much money James and I would need. In the inputs section, it asked whether or not to include Social Security as a given.

Whether you are for or against Social Security, if you know much about the system it isn’t hard to come to agreement that the current system is broken.

See, Social Security doesn’t work with the benefit of compound interest as private retirement annuity plans have. This means that the money you pay into the system never grows. What you put in today goes into the pockets of Social Security recipients of today.

What does this mean for those who are say forty-five and below? Basically because of demographic change there will be fewer people paying into the system by the time we hit the golden age. This means that there will be more deductions than contributions.

If you can do the math, this means that soon there will be a deficit and the system will run out of money. People might think of Social Security as a given, but the system nearly went entirely broke in the early 1980s. The government was within months of hitting zero on Social Security funds when Congress managed to sort it out and tweak the system to keep it running.

You might ask – where does the surplus money from today’s contributions go? That would be the national debt that grows endlessly these days. Some politicians have fought for Social Security funds to be kept in a no touch pot, but this isn’t how the system currently works.

I’m certain our readers have many different opinions about Social Security in general.

Readers: Do you plan to count on Social Security funds for your retirement?

I look forward to hearing what other people’s feedback is.

Cheers,

Miel

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