No. of Recommendations: 6
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
Print the post  

Announcements

The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.