FICA explained and the real deal on social security

[O.S.O.K.]

This subject comes up from time to time here. We discuss and argue about social security, medicare, etc. - how much we pay into it, etc.

Watch this. And while you are watching - understand that anything that your employer pays on your behalf is in fact, part of your compensation. It is money that would have or could have been paid to you directly.



Add the fact that paying this tax, you lose the ability to invest it and earn a return on it. The general rule is that the amount will double in 7 years - every time you pay - in 7 years that amount would have doubled.

It's called the time value of money. You lose this.

Now, do the math and it becomes painfully obvious that everyone that works and contributes to social security and medicare is getting screwed - big time. You work for 47 years and pay all of that money in and lose the money you could have made in interest on it and then only get a percentage back after you retire. The rest goes to people that didn't contribute and was spent by our so-called representatives to help them get re-elected.

Remember, you still have to pay medicare premiums and this will be doubleing in 2014. And now you have to pay tax on your social security.

Lets show an example to illustrate: (using only the amount that YOU contribute)

Lets use an interest rate of 5%. Lets use an average of $3000 contributed per year over the course of 47 years of working (age 20 to 67). You most likely paid less in the first 23.5 years and more in the later 23.5. Even comounding yearly instead of weekly or monthly (like you actually pay) you come up with $534,358 at the point of retirement.

Sorry, but to say that you will be getting $534,358 back before you die is comlete and utter BS.

Now, add the amount that your employer also pays in, that you don't get as compensation from them and you get $1,067,712. And that's just the social security side.

Here is the site that you can use to calculate future value of annual contributions if you want to plug in something different: http://www.investopedia.com/calculat...#axzz1fURHpsjf

I don't want to hear any more BS about how we are getting such a great deal from social security. It simply isn't so. Especially when you consider that the feds are still earning interest on your money as they are making the pitiful little payments back to you.

[El Jefe]

I'll try to add to this later, when time permits.

[O.S.O.K.]

That would be great Jefferson. There are other mitigating points.

Like figure that the average lifespan gets us to 74 years.... and say you get $30K back per year after retiring at 67 - that's only $210,000 - even if you extend the average age at death to 80 years old, it's only $390,000.

There is just no way in hell that there is any excuse for running out of funding for social security.

The fact is the money has been stolen and spent on things other than payments to contributors.

It's not a ponzi scheme. It is simple theft - on a grand scale.

We really should be in the streets demanding retribution and immediate reform.

[mriddick]

The numbers are good for those paying the SS tax today (although note our share of SS tax has been 4.2% this year due to the stimulus which has hurt SS in the long term).

The problem is those retiring are not retiring at 67 but on average well under 65, they are also living well into the 80's, I do not think 84 is out of line (going by memory). Remember when people compute death rates they count deaths at birth, if you live to 65 your chances of living to 85 are very good. Then you have slightly over 30% of those collecting SS being under the age of 65 due to disability and the deaths of parents (children) and widows. Also remember if you figure what people have paid into the system up until 1969 people paid only about 1% (those 60 and up might of paid this rate), up till about 1984 only 2%-4% (those 45-60 paid this rate), it's only been after that (thanks Reagan) we've had a sustainable rate but those people aren't the ones retiring right now, it's those who paid in at an unsustainable rate that are.

If you want to lump in medicare there's just no way anyway to show today's medicare tax rates are close to sustainability, simply put the medicare tax should probably be greater then the SS tax since it's costs are growing at a greater rate then SS and it's much less at the moment.

[O.S.O.K.]

Go ahead and make it 85 then. Nothing changes. The federal govt is still holding the money the whole while and you really do have to count the empoloyer's conribution because they sure as hell aren't going pay you that if they have to contribute.

Further, my calculations are for a yearly contribution instead of a per-paycheck contribution which boosts the earned interest over time. In other words, my calculations are low.

Why do you argue that the government hasn't stolen our money? It is obvious that they have.

The best answer to this IMHO is to change things - transition to the government NOT getting their damned hands on our money - to fix things so they get as little as possible.

Oh, but that doesn't figure into the marxist model now does it?

[mriddick]

Go ahead and make it 85 then. Nothing changes. The federal govt is still holding the money the whole while and you really do have to count the empoloyer's conribution because they sure as hell aren't going pay you that if they have to contribute.

Further, my calculations are for a yearly contribution instead of a per-paycheck contribution which boosts the earned interest over time. In other words, my calculations are low.

Why do you argue that the government hasn't stolen our money? It is obvious that they have.

The best answer to this IMHO is to change things - transition to the government NOT getting their damned hands on our money - to fix things so they get as little as possible.

Oh, but that doesn't figure into the marxist model now does it?

SS is the greatest socialistic program going no doubt, as I've stated before we're all conservative capitalist before 65, then it seems most turn socialist at least in part after

Where your math is off it's in the average age of retirement is much lower then 67, actually lower then 65 due to children, widows and those on disability drawing it. Unless you want to say if you get hurt or die while of a working age you, your kids and wife get nothing you're going to have to include the actual average age. IMO at this point we ought to look at separating the disability and retirement functions of our SS tax (and yes I know of the original intent of doing it the current way)

BTW the last time I did the math for an actual retiree, I found that person would of needed to get slightly under an 8% yearly rate of return over 45 years to pay their SS (and this did not even touch their medicare). I've looked at another person at another time who would of needed over 11%. So I'm not sure if you use best situation numbers or what but in practical terms I don't think it's very tough to get much more then you've paid in or could of reasonably of expected to get had you invested the money yourself (and lets be honest if given the choice few would of invested the extra money given the chance).

[Altarboy]

If I get what the statement they send out says I'll get, I'll be ok. Well, assuming my house is paid off. My 401k is taking a beating and my David Lee Roth IRA is sucking wind. Sad, since I could have a sweet diesel 4x4 for what I put into my 401k.

[El Laton Caliente]

My 401K has been in cash for two years plus. I didn't make anything, but it isn't going backwards. I've consided putting it all in gold/silver or ammo....

[LAGC]

Don't forget about COLA (Cost of Living Adjustments) guys.

Ideally, its supposed to keep up with inflation, so the money you get paid back once you retire is a lot more than the S.S. pay-out during the time when you're paying in.

With as shitty as the stock market is performing any more, the COLAs may very well out-perform most 401Ks and IRAs in the future.

The best answer to this IMHO is to change things - transition to the government NOT getting their damned hands on our money - to fix things so they get as little as possible.

How do you do that without fucking over all the people who have paid into it their whole working lives and expect to retire soon? Not mention all those on disability?

If you make younger folks save for their own retirement AND pay to support current S.S. retirees, they're not going to be happy campers.

[mriddick]

All money paid into SS is accounted for, it's one reason we know it runs out in 2037 (opps make that 3035-6 now due the last democratic congress and Obama). I think what he is saying if the money was invested it would of had a much greater rate of return but that brings up how would you invest such money even if you could, T bills, the stock market? T bills would be the government investing in itself, in the stock market you could say whoever was investing the money would be the most powerful man in America (think of how the anti fed types would like that ).

Really we had a system that wasn't sustainable until the mid 80's, simply put if you worked before that the money you put in was less then you were going to withdraw (on average). Since the mid 80's we've been pretty good on SS but we still have to pay for the millions retiring who didn't pay a sustainable rate (their cushion runs out in 2035-6 now). Then you have to look at the other big entitlement medicare which has never and is still not being paid for at a sustainable tax rate, and even worse it's rate of increasing cost is growing faster then SS's. Medicare's tax probably needs to go up 150% or more IMO to stay sustainable, and the thought about that would be the economy couldn't absorb that type of tax increase at this time.

[El Jefe]

http://www.zerohedge.com/news/guest-...country-part-1

http://www.zerohedge.com/news/how-us...country-part-2

[O.S.O.K.]

SS is the greatest socialistic program going no doubt, as I've stated before we're all conservative capitalist before 65, then it seems most turn socialist at least in part after

Where your math is off it's in the average age of retirement is much lower then 67, actually lower then 65 due to children, widows and those on disability drawing it. Unless you want to say if you get hurt or die while of a working age you, your kids and wife get nothing you're going to have to include the actual average age. IMO at this point we ought to look at separating the disability and retirement functions of our SS tax (and yes I know of the original intent of doing it the current way)

BTW the last time I did the math for an actual retiree, I found that person would of needed to get slightly under an 8% yearly rate of return over 45 years to pay their SS (and this did not even touch their medicare). I've looked at another person at another time who would of needed over 11%. So I'm not sure if you use best situation numbers or what but in practical terms I don't think it's very tough to get much more then you've paid in or could of reasonably of expected to get had you invested the money yourself (and lets be honest if given the choice few would of invested the extra money given the chance).

You are ignoring the employer's contribution. That is money that would normally be applied towards compensation - to attract the best workers. That doubles the amount of money going into the system.

And I don't give a rat's ass what the government can and can't do with investements - they shouldn't have the damned money in the first place.

And I don't call expecting to get 60% of your money back being "socialist". You should be ashamed to say that.

[O.S.O.K.]

My 401K has been in cash for two years plus. I didn't make anything, but it isn't going backwards. I've consided putting it all in gold/silver or ammo....

I did the same - have it in bonds actually - earn about 4%. I'd put my work 401K in PM's but that is not an option. I could roll them out into another approved fund though....

[El Jefe]

I did the same - have it in bonds actually - earn about 4%. I'd put my work 401K in PM's but that is not an option. I could roll them out into another approved fund though....

Dude, read those articles I pinched from ZH, they'll make your head explode!

[mriddick]

You are ignoring the employer's contribution. That is money that would normally be applied towards compensation - to attract the best workers. That doubles the amount of money going into the system.

And I don't give a rat's ass what the government can and can't do with investements - they shouldn't have the damned money in the first place.

And I don't call expecting to get 60% of your money back being "socialist". You should be ashamed to say that.

I'm not ignoring the employers contribution, it's included in all my calculations. However I'll say one more time you are ignoring the childrens, widows and disabled recieving payouts. And one more time, every cent contributed is accounted for, it's how we know the plan runs out in 2036. As for investing it yeah you can say whatever you will on that count but it still wouldn't discount the entire system as one huge socialistic program. It's not a saving plan, it's not an investment, it's socialism pure and simple.

If you go by the averages you will get more then you pay in. I don't know how anyone today collecting SS can calculate getting back only 60% but even if true (big doubtful) they are at best only looking at an individual account and not the system that pays the above disabled, widows and children as well as medicare. And no one can come close to saying the medicare tax even comes close to saying pays it's way with a straight face.

I know the facts show these entitlements are not close to being paid for (SS and Medicare) I also believe all the major issues of the nation today can be traced back to these programs. I'm not a defender of the programs but if people want them they ought to pay for them. I'm really OK with leaving them in place but if that's the way then lets be real and look at the true costs of the entire system and remember it's more then just one person who's reach 65...

[samiam]

My 401K has been in cash for two years plus. I didn't make anything, but it isn't going backwards. I've consided putting it all in gold/silver or ammo....

El didn't you get hit with the income tax and a 10% penalty for cashing it out?

[El Laton Caliente]

El didn't you get hit with the income tax and a 10% penalty for cashing it out?

No, it is in a cash IRA at my credit union. It is only making about 2%...

I've been looking at a gold / silver metals investment IRA where you buy gold or silver and it goes into you safety deposit box at thier location. The wife wants it buried in the yard and take the hit.

[mriddick]

Lets show an example to illustrate: (using only the amount that YOU contribute)

Lets use an interest rate of 5%. Lets use an average of $3000 contributed per year over the course of 47 years of working (age 20 to 67). You most likely paid less in the first 23.5 years and more in the later 23.5. Even comounding yearly instead of weekly or monthly (like you actually pay) you come up with $534,358 at the point of retirement.

Sorry, but to say that you will be getting $534,358 back before you die is comlete and utter BS.

Now, add the amount that your employer also pays in, that you don't get as compensation from them and you get $1,067,712. And that's just the social security side

This where your figures are off, first off $3000/yr sounds like a good amount of money today, in 1964 (47 years ago) it would of been a massive amount. Remember in 1964 the maximum wage for SS was under $5000/year, you're saying a person could of save 60% of that max amount. Most people save very little in the first 20 years, much more in the later half, still though the way compounding interest works it's the $3000 saved in 1964 that means more in the long run then the $3000 saved in 2010. I think for this reason the savings amounts are off by probably 1/4 to 1/3 (giving credit that you'd save more in later years).

The whole idea that you could average 5% over 47 years is doubtful, in the last 10 we've averaged 4 and that doesn't include any fees to run your fund, IMO 2 to 3% is better which that alone cuts down the amount 50%. For years people did not invest on their own, that is a relatively new idea from the mid 90's on.

Also the idea the average worker works 47 years does not hold up, very few work that long, the average is well under that.

In the end I really don't think you'd be talking $500,000, I think the actual amount would be closer to 1/3 that amount if that. And that doesn't even count on whether in 1975 would you have saved $3000 or would you have bought a new car, boat or house? I think SS is a great idea, medicare is even better, what isn't a good idea is basically taking an open ended entitlement with no real spending limit and decide we can fund it at 2/3rd it's true costs.