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Monday, September 19, 2011

Social Security is safe


Social Security is one of the most talked about subjects around because a lot of people have been scared into thinking that it's on shaky ground. This has been going on since I was a little boy. It's not something we should be worried about because it's backed by United States Treasury bonds held by investors here and abroad. It's backed by the full faith and credit of the United States of America, so if that's worthless so are the dollar bills in our wallet, as well as the savings bonds and treasury notes held by banks and foreign nations.

Social Security has been bringing in more revenue than it spends since 1983. We currently have a $2.7 trillion trust fund projected to grow to 3.7 trillion by 2022. That's the money that was collected from your paychecks and loaned to the United States government. You would have to think that we won't have enough employers and employees to keep contributing, if you think, Social Security will go broke. If that's the case, it will be irreverent because the whole country and world will be bankrupt.

Every now and then, the term “Ponzi scheme" will come up to describe Social Security, but nothing could be further from the truth. Ponzi schemes crash, when they don't have enough new the investors buying in. Social Security does not have that problem. Payroll tax deductions are forever but every now and then adjustments must be made to keep Social Security solvent. A lot of factors affect the solvency of Social Security such as birth rates, employment, and economic growth. By law, Social Security cannot pay out more than it brings in, nor can it borrow to meet its obligations. In the unlikely scenario of the system having insufficient funds, it would have to reduce benefits but that would not cause it to implode.

No matter what you hear, Social Security is a self -financing system that does not increase the deficit or the debt. It's why reforming Social Security should be a standalone issue and not part of a deficit or debt reduction committee.

While it's true that a 401K, IRA, or other retirement funds may get you more bang for the buck, Social Security has always been meant to be a supplement not the main retirement fund. Politicians like to use it as a retirement vehicle saying that if the employee were allowed to take 2% of the 6.2% that is normally deducted from their check, and allowed to invest it with Wall Street, the employee would be better off as well as Social Security. Not so, with more baby boomers be ineligible for Social Security that 2% right now would be taking out of the Social Security proceeds. There's nothing preventing the employee from investing with Wall Street on their own with his after-tax money.

I know I probably didn't change any minds but at least check it out because it's no use you worrying about something that be there when you retire. I don't need a cost of living raise, because if I need that $12 more a month, then I'm living too close to the edge. There are some elderly people that need the $12.00 a month, so I don't begrudge them, we could do a means test. My wife and I took the 15% penalty each because we opted to take ours at age 62, and we don't regret it a bit.

Unlike Governor Perry,I can look my grandchildren in the eye and say "Social Security will be there when you retire" but I would advise them to fund their 401K or IRA. 

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