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Author: davekone Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: Social Security Tax Date: 8/26/2003 2:51 PM
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Do you think the government will ever allow SS tax to be used as retirement money? Basically take your SS tax dollars and put them in IRAs or 401k?

David
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Author: TurkeyBreath Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37029 of 76418
Subject: Re: Social Security Tax Date: 8/26/2003 3:07 PM
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...Basically take your SS tax dollars and put them in IRAs or 401k?,.

I don't think so. IRA allow only earned income. Earned as in wage incomes.

TB




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Author: whiteben One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37030 of 76418
Subject: Re: Social Security Tax Date: 8/26/2003 3:08 PM
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Do you think the government will ever allow SS tax to be used as retirement money? Basically take your SS tax dollars and put them in IRAs or 401k?


It sounds like you are asking whether or not monies taken as SS tax will ever be privately managed by the taxee. Various proposals to privatize various parts of social security have been floated over the past few years. All seem to be considered DOA because of the presumable massive vote against such measures, largely cast by the elderly and the baby boomers. The fact that this comes up in things like election debates, however, is a good thing. It means that it is an issue which is on a table and perhaps not as much of a 3rd rail as it has been in the past.

I suspect that ultimately there will be at least a partial privatization but it will be a couple of decades off and will necessarily include provisions not to reduce the entitlement of retirees or those close to retirement age. No matter what happens, I sincerely hope that the social security system (and the tax code in general for that matter) is overhauled in the near future. I intend to vote at the ballot box and with my wallet for those who seem to have a desire and the capacity to make this happen.

Eternal vigilance is required to make sure that government entitlements do not careen out of control. Things like this (http://www.heritage.org/Press/Commentary/ed081903c.cfm) will happen under our noses if we do not pay attention.

BEN


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Author: frankwomble One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37032 of 76418
Subject: Re: Social Security Tax Date: 8/26/2003 3:21 PM
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Being somewhat of a cynic, I don't think privatization of SS accounts that could be managed by the taxee are in our near future. Because:

1. People don't, can't or don't want to understand the SS system
2. There is a 'head-in-the-sand' mentality for many
3. Our politicians are short-sighted and cowardly
4. As whiteben alluded in his post, current entitlements of retirees or those close to retirement age would have to be guaranteed to avoid political suicide.

I would like to see the system changed or at least partially privatized, but I don't think it will be.

Here's the scary part: take a close look at your SS annual statement and see what is says about when the SS system will have less than it needs to meet projected payouts.

If we don't force our politicians to get their act together, you can certainly count on: increased SS taxes, increased retirement ages, and reduced SS benefits in the future. The demographic train wreck is coming whether we like it or not.

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Author: whiteben One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37033 of 76418
Subject: Re: Social Security Tax Date: 8/26/2003 3:50 PM
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Frankwomble wrote:
If we don't force our politicians to get their act together, you can certainly count on: increased SS taxes, increased retirement ages, and reduced SS benefits in the future. The demographic train wreck is coming whether we like it or not.

Exactly right. I am not sure that the public necessarily needs to understand SS reform in great detail. Certainly they do not understand the current system at all or else everyone under the age of, say, 50, would be wildly jumping up and down for SS reform.

The hope I have is that this will increasingly become a vital national election issue. As the Ponzi scheme that is SS begins to collapse voters will find themselves with a two basic, stark choices:

1. Reduce benefits and/or increase taxes and/or increase retirement age
or
2. Run increasingly large deficits.

The same rock-and-hard-place choice is applicable for things like Medicare. Who do you think would pay for an extensive senior drug program (if such a thing comes to pass)? Hint: the seniors are not working any more.

Like frankwomble I am pessimistic on people waking up to this in the near future. But I am hopeful that over the next decade or two these program could be streamlined to reduce the hemorrhage of money. Or maybe I am just pissing into the wind here.

BEN


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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37034 of 76418
Subject: Re: Social Security Tax Date: 8/26/2003 10:06 PM
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Actually we are CURRENTLY running large deficits which will increase even more dramatically BEFORE SS is factored in.

What we need is less rhetoric and more education, it is a complex problem, it can be solved. IMO, it would have been much easier w/o cutting taxes for the wealthy.

buzman

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Author: MadCapitalist Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37035 of 76418
Subject: Re: Social Security Tax Date: 8/26/2003 10:20 PM
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What we need is less rhetoric and more education, it is a complex problem, it can be solved. IMO, it would have been much easier w/o cutting taxes for the wealthy.

The problem with tax revenue has nothing to do with the tax cuts. Liberals were blaming the tax cuts before they even took effect. The problem is the state of the economy. Tax revenues decline with the economy (especially capital gains taxes). Leaving high tax rates and costly regulation in place when the economy is weak would just make matters worse.

The real problem is on the spending side of the equation. Both parties are spending like there is no tomorrow.

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Author: whiteben One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37036 of 76418
Subject: Re: Social Security Tax Date: 8/26/2003 10:26 PM
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The real problem is on the spending side of the equation. Both parties are spending like there is no tomorrow.


Amen to that. I am hard pressed to think of a single major program or entitlement that was repealed. It seems like once these sorts of things get their initial funding they will never, ever go away. This is not a judgement on whether these programs are good or not, just that politicians find it much easier to say "I increased entitlements" than "We can do without this and should not be spending this money".

Maybe I should cross post to the Libertarian Board.

BEN

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Author: MadCapitalist Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37037 of 76418
Subject: Re: Social Security Tax Date: 8/27/2003 7:27 AM
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Amen to that. I am hard pressed to think of a single major program or entitlement that was repealed. It seems like once these sorts of things get their initial funding they will never, ever go away. This is not a judgement on whether these programs are good or not, just that politicians find it much easier to say "I increased entitlements" than "We can do without this and should not be spending this money".

Politicians seem to think that if a program hasn't been effective it is because they haven't thrown enough money at it.

Unfortunately, politicians will always criticize other politicians who cut any program as uncaring.

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Author: BuildMWell Big gold star, 5000 posts Feste Award Nominee! Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37041 of 76418
Subject: Re: Social Security Tax Date: 8/27/2003 2:15 PM
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"If we don't force our politicians to get their act together, you can certainly count on: increased SS taxes, increased retirement ages, and reduced SS benefits in the future. The demographic train wreck is coming whether we like it or not." - Frankwomble

I used to think the same thing. But, I have changed my mind concerning the future of Social Security and it's viability. I have come to understand that it may well be under control...or close to it.

I do the income taxes for two elderly women who are both retired. Both receive Social Security. The first was always middle class with modest savings who paid for a house through hard work. She has ended up with an estate of about $350,000 all of which is invested and she lives exclusively off of the income from her investments which yield about 8% ($28,000) plus Social Security of about $900/month. This lady has paid no income taxes in the past ten years...she breaks even year after year. I manage her investments for her. If she becomes ill, her estate will be depleted rapidly and she will then rely on Medicaid to exist.

The second lady has an estate of about $3 million and receives about 3.5% on her investments ($70,000) which are 2/3 of her estate. Her Social Security is about $1500/month or $18,000/year. Each year she ends up paying back between 90% and 95% of her Social Security to the Government. She breaks even year after year. If she gets sick, her estate can pay for almost any illness. She will never rely on Medicaid.

Now, what I think I have figured out is this. As time passes, more and more people will be defined by the second lady than the first. Private accounts would surely speed up the process of building estates in America to allow more folks to be self-sufficient and fund their own social security. It seems to me to be inevitable.

As the GDP grows in the future, wages will increase and everyone will be pushed into higher and higher tax brackets. The folks who know that Social Security will not be there to fund their retirement will be forced to save more money and invest for their own self-preservation. It is a survival thing. They will demand fully funded retirement programs from their employers. These, of course, will become income that is taxable at retirement. Also, they will be saving on their own to make sure they are covered...the income from those investments will be taxable at retirement even if they are sheltered by an IRA/401-K today. Thus, the younger folks will become more and more like the second lady I described and they will be paying their own social security in 30 years.

I am open to discussion on this. Since I just changed my mind on this a week ago while I was talking to lady number two about her investments. So, if I am seeing something unclearly here, I need my attitude tweeked back to a more realistic mode. However, it seems to me that the politicians may actually understand Social Security far better than we think they do.

Now, I still like the idea of private accounts instead of sending the money to Washington to be abused. I firmly believe that an individual can better manage his or her own funds through a properly designed program that cannot be abused by the investor nor by the investor's fund manager. Surely, letting compound interest work for us is preferable to trusting the government to do the job...with them involved, we pay anyway and get back less for ourselves.

But, maybe Social Security is not going to collapse as I previously thought when I looked at the $44 Trillion total debt in lieu of the $7 Trillion we are told the government owes. The $37 Trillion unfunded difference may not be as unfunded as I originally thought. That is, if we will all save like crazy starting right now. We can bail out the government with our own tax payments at retirement.

Have I missed something?



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Author: davekone Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37042 of 76418
Subject: Re: Social Security Tax Date: 8/27/2003 2:23 PM
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Now, I still like the idea of private accounts instead of sending the money to Washington to be abused. I firmly believe that an individual can better manage his or her own funds through a properly designed program that cannot be abused by the investor nor by the investor's fund manager. Surely, letting compound interest work for us is preferable to trusting the government to do the job...with them involved, we pay anyway and get back less for ourselves.

I agree. I hate to see my SS money going into a endless pit that I may never see again.

David

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Author: BuildMWell Big gold star, 5000 posts Feste Award Nominee! Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37049 of 76418
Subject: Re: Social Security Tax Date: 8/27/2003 5:01 PM
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"I agree. I hate to see my SS money going into a endless pit that I may never see again." - David

But, have you done the math yet to check out what I have suggested? If I am right, once you retire, you can trade dollars with Uncle Sam and come close to breaking even each year. Meanwhile, you will not be a burden to Uncle Sam because the government will actually pick up a few bucks from you each year to pay for the slackers that you are also paying for today. But, if enough folks are like you and me, Social Security will be solvent forever. Everyone will just end up paying themselves!

The real questions are, "Why waste the effort sending the money to Washington in the first place? Why not just leave Washington out of the whole thing?"

Let me tell you what brought me to do the math for myself. I was talking to elderly lady number two and I was joking around. I said, "I have been doing your taxes for eight years and I just noticed something. You send almost precisely the same amount of bucks to Washington each year as they send back to you in Social Security payments. It is a wash. Why don't we write to them and just ask them to ignore you. Thus, you agree to pay no more income taxes while they agree to send you no Social Security. Think of the postage savings?"

If you work real hard and build yourself a fine personal retirement program, maybe you can make them the same deal. Of course, every dime you have paid in over your career is lost forever. Once enough of us do the math, maybe we can get the system changed so we can stop sending our money to Washington in the first place.






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Author: cfayed One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 37063 of 76418
Subject: Re: Social Security Tax Date: 8/30/2003 7:37 PM
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I thought your analysis was excellent and your solution sounds sensible but what would you do about those who can't do a good or even marginal job of investing their money and end up with nothing?

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