No. of Recommendations: 2
Wall Street Journal says we may need to cut Social Security benefits if we want to continue the policy of offering tax cuts to millionaires and billionaires. The bond market won't allow us to borrow the money to fund the tax cuts forever.

http://online.wsj.com/article/SB1000142405274870407380457602...

The latest tax deal appears to rule out tax increases, possibly for good. Federal taxes currently account for about 15% of the gross domestic product—lower levels than we ever saw under Eisenhower or Reagan, and the lowest since 1950.

If we don't raise taxes, we are left with two options: a financial crisis, or deep spending cuts. Assuming we embrace the latter, that would mean going after Social Security and Medicare. After all, that's where the money is. These two programs already account for a third of the entire federal budget, and that proportion is set to rise dramatically, as the population ages and the baby boomers retire.

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intercst
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For about as long as I've been investing for retirement, I've done so with the expectation that Social Security would collapse before I'd see a dime back. These days, I'm very glad I've been doing so, since the program appears to be falling apart even faster than I thought it would.

Social Security has been on less than solid footing for at least as long as I've been working. And even among my family members old enough to have been alive when Social Security was signed into law, those in my family who depend on it today feel betrayed by how little it provides vs. what they thought they'd be getting.

Part of that is my family members' own doing for treating it as their only or primary retirement plan. Part of it is the fact that the inflation adjustment has not kept up with their costs of even modest living. And part of it seems to be generational -- some of the early beneficiaries really did get a sweetheart deal from Social Security, due in large part to the shorter life expectencies back then....

-Chuck
Inside Value Home Fool
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Would someone please tell me what the correlation between Federal income taxes, etc. and SS and Medicare. SS and Medicare are paid separately as Employment taxes and supposedly are to be placed in a trust fund, not in the General fund.

Donna (who still feels we need to increase the Employment taxes, although I am still working and own my own corporation; therefore paying twice as much as a W-2 employee)
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. Would someone please tell me what the correlation between Federal income taxes, etc. and SS and Medicare. SS and Medicare are paid separately as Employment taxes and supposedly are to be placed in a trust fund, not in the General fund.


if i understand the question ..

the connection is that when there's a surplus for SS, the trust-fund is raided by the General Fund and given T-Bonds (IOUs)

those Bonds will have to be re-paid from General Revenue (incl Income Tax)

if there isn't sufficient Revenue (due to ,inter alia, lower taxes), one way to deal with that is default the SS Bonds. (apparently the preferred way by the WSJ)
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It would appear to me that Congress needs to change the way the Feds are raiding the SS and Medicare funds. I am going to write my Congresscritter and my favorite Senator. The other senator does not exist as far as I am concerned (DeMint).

Donna
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No. of Recommendations: 5
Yes I can and will retire without Social Security. Hopefully that will happen in July 2013.

When I started saving for retirement, I assumed no Social Security and planned accordingly.

Whatever I get from SS is dessert. Since the federal government eliminated the SS loophole, I haven't decided whether to take SS at 62 vs 70.

My father died at age 89. Mom at 83. It's pretty difficult to beat "the best annuity out there" (William Bernstein, "The Investor's Manifesto) so I'm leaning on taking SS at age 70.

IIRC, my SS benefits will increase 8% per year from age 62 to 70 as long as I don't take them. That guaranteed "bull market" in "bond income" is pretty difficult to beat today in the real world of investing.
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NO! But that isn't the way it was planned. When I was 30 I looked at it as a 3-legged stool. SS and my company pension would let me survive. My personal savings would let me "live". At the time I increased my savings, and did without some things, because I didn't know whether SS would be there for me.

But it wasn't the SS leg of the stool that broke, it was the pension leg. Lost my job after 24 years with the same company. Guess what. Nice defined benefit pension plans are backend loaded. Leaving 9 years early lopped over 40% off my pension. No way to make that up that late in life. Fortunately I did a good job of saving and investing. Not living high on the hog but I'm comfortable. But without my SS I'm in deep manure.

Same with health care. I've bought my own health insurance since 2000. Watched it triple in 10 years even though I more than tripled my out-of-pocket liability trying to hold premiums down. Fortunately my health was good all those years. But I couldn't afford to spend a lot on preventative care so I did without. Without Medicare, which I just got on in August, I would still not be seeing a doctor. Good news is I just completed a full battery of tests and got a clean bill of health. Doc doesn't want to see me for a year.

Take away my SS and Medicare and life gets pretty bleak. I can survive for a while but the .45 caliber solution will be a lot closer than I want to think about.
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From day one I never counted on Social Security. Even if it survived to my "retirement age", I figured I'd be means tested or taxed out of anything that came my way.

There was one bright four year period during residency training, we got to opt out of SS taxes and contribute to a deferred compensation plan. In other words, our money was put into an individual account that was ours and ours only. I guess it was some loophole option because we were considered state employees. When we were no longer employed, we could roll the money over into our IRAs.

JLC
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Yes, we're retired right now at 60. Our plans always excluded SS. That said, it sure would be nice and helpful to get SS, because we then would only need at most 1% to 2% withdrawal rate. Our single largest expense is private insurance premuims, deductibles, co-insurance, and co-pays. Medicare should reduce our total medical costs by almost 50%, at least I so. I'm not overly worried about SS, because I think we'll both get it when the time comes, even though more might be taxed or the COLA might be lower. Good luck to us all.
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Would someone please tell me what the correlation between Federal income taxes, etc. and SS and Medicare. SS and Medicare are paid separately as Employment taxes and supposedly are to be placed in a trust fund, not in the General fund.

Federal income taxes go into the general fund, which is used by congress and the president to pay for the countries expenses (with borrowing making up the rest in deficit years and any surplus generally being used to pay down outstanding debt.)

Medicare taxes have only covered part of the Medicare program since the program's onset, with the deficit being paid for with funds from the general fund.

Social security taxes historically have been paid into the SS trust fund, which historically has run a surplus. This surplus is loaned to the general fund, which means the general fund has to borrow less to cover the deficit. However, at some point the trust fund will need to redeem these loans from the general fund, at which point the federal government will need to do one of three things: borrow additional funds, spend less, or raise taxes.

Think of it as this: Each month I "save" $100 into a savings account to pay for a car in 5 years. But then each month I "borrow" all the money in that account to pay for my day to day expenses. In five years, I have $6,000 "saved", but I've lent that money to myself. In order to buy a car, I need to either make an additional $6,000 ("raising taxes"), take a car loan (borrow), or cut my day to day expenses by $6,000 (cut spending).

I personally don't mind this method, but only if there is more transparency and its no longer referred to as a "fund". The SSA speaks of a $2.5 trillion fund, which doesn't really exist because its all been loaned to the Federal Government. Its no different than me saying that I have $250,000 in savings, but its all in IOUs that I've owe to myself because over the past years to pay for my day to day expenses.

To answer the original question (keeping in mind I'm 27), I'm planning on NO social security when I do retire decades from now. I expect that there will be drastic changes made to the program, and if I do end up receiving something, its not going to be part of my expected income in retirement.

WRJ
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Would someone please tell me what the correlation between Federal income taxes, etc. and SS and Medicare. SS and Medicare are paid separately as Employment taxes and supposedly are to be placed in a trust fund, not in the General fund.

The SS "trust Fund" is a sham. Or to be more polite, merely a paper transaction. It's as if you saved money by loaning it to your spouse. Or having your left pocket borrow money from your right pocket.
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It's as if you saved money by loaning it to your spouse. Or having your left pocket borrow money from your right pocket.

Not quite ... If you move it from your left pocket to your right pocket, you'd still have the money. I'm not so sure that that is case if you gave it to your spouse! 8^)

James
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I'm not so sure that that is case if you gave it to your spouse!

No problemo. She's good for it. All she has to do to repay me is to write a check. ;-)
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The SS "trust Fund" is a sham. Or to be more polite, merely a paper transaction. It's as if you saved money by loaning it to your spouse. Or having your left pocket borrow money from your right pocket.

Well, not exactly. If your spouse promises to pay you back, and if she has earning capability into the future, then yes. That would be analogous, since Social Security promises to pay you back, and the future revenues will come from - as they have in the past - the taxes on the then working population.

The snarky "left pocket to right pocket" is the stuff of either terrible misunderstanding or deliberate lying. The monies are secured by US Government obligations, which, so far as I can tell, are considered the safest investment in the world. So safe, in fact, that people all over the world keep buying them, even with no (or even negative) interest rates. That they have to be paid back is no big surprise. At least to some.
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The snarky "left pocket to right pocket" is the stuff of either terrible misunderstanding or deliberate lying.

No, it is quite accurate. The government is lending money to itself. More specifically, the SSA is "lending" money to the Treasury Dept, who gives the SSA an IOU promising to pay it back. Just like your left pocket lending money to your right pocket. Unless you believe that the SSA and the US General Fund are not two divisions of the same entity?
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Rayvt explains,

No, it is quite accurate. The government is lending money to itself. More specifically, the SSA is "lending" money to the Treasury Dept, who gives the SSA an IOU promising to pay it back. Just like your left pocket lending money to your right pocket. Unless you believe that the SSA and the US General Fund are not two divisions of the same entity?

How is the Treasury debt owed to the Social Security fund different from the Treasury debt owed to the Chinese, Saudis, and Koreans?

If anything it's probably more secure since I imagine any politician who tried to cut Social Security to keep the Chinese and Saudis whole would be quickly run out of town by an angry band of senior citizens.

intercst
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