Social Security's New Math: Who Wins, Who Doesn't

[hegemony]

http://www.smartmoney.com/personal-finance...ins-who-doesnt/

[athensgaguy]

My health insurance premiums are going up 12% or so Jan. 1. I'm pretty sure the CPI-W doesn't take health insurance into account, or does it?

[nothingtolose]

By the time I retire SS benefits would probably be around zero.

[hegemony]

By the time I retire SS benefits would probably be around zero.

I don't have to worry about this since I am except from paying into SS.

[jayrandom]

By the time I retire SS benefits would probably be around zero.

I don't have to worry about this since I am except from paying into SS.

 

How did you swing that?

[radi8]

My health insurance premiums are going up 12% or so Jan. 1. I'm pretty sure the CPI-W doesn't take health insurance into account, or does it?

 

Medical care "services" and "commodities" are the closest I see. Huge drops in the energy categories wiped out the increases in those medical categories.

http://www.bls.gov/news.release/cpi.nr0.htm

[radi8]

By the time I retire SS benefits would probably be around zero.

I don't have to worry about this since I am except from paying into SS.

 

How did you swing that?

 

Certain state/county employers are allowed to set up their own retirement plans and circumvent the SS system. DW didn't pay into SS when she was a county employee, they had a mandatory county retirement plan that took it's place.

[hegemony]

By the time I retire SS benefits would probably be around zero.

I don't have to worry about this since I am except from paying into SS.

 

How did you swing that?

 

certain entities can except their employees from social security. This also means I won't get any SS when I retire (except perhaps a very small amount based on jobs I've held that do pay in)

 

Instead of SS we have a "forced" retirement plan under 401a/414h whereby we have to put 10.5% in and that is matched 100%.

[Kevin20]

certain entities can except their employees from social security. This also means I won't get any SS when I retire (except perhaps a very small amount based on jobs I've held that do pay in)

 

Instead of SS we have a "forced" retirement plan under 401a/414h whereby we have to put 10.5% in and that is matched 100%.

 

 

Though I'm aware of that fact, I have no idea what has been the rationale behind permitting school systems and other organizations to opt out of social security. Is there some explanation? (I mean aside from, "getting votes"...)

[hegemony]

certain entities can except their employees from social security. This also means I won't get any SS when I retire (except perhaps a very small amount based on jobs I've held that do pay in)

 

Instead of SS we have a "forced" retirement plan under 401a/414h whereby we have to put 10.5% in and that is matched 100%.

 

 

Though I'm aware of that fact, I have no idea what has been the rationale behind permitting school systems and other organizations to opt out of social security. Is there some explanation? (I mean aside from, "getting votes"...)

 

ignoring the politics, the main justification is it is cheaper for the employer, since these employers are general gov't or non-profits. although not all (not many?) do opt-out.

 

cheaper in that instead of paying 7.125% or whatever for SS and then 6 or 7% toward my retirement it pays 10.5%. savings millions $$ for state gov't alone.

 

put differently, in regards to state and local gov't it saves tax payers money.

 

for workers it can be good or bad. A lot depends on 1) do you think SS will be around when you retire and 2) are you good at saving additional $$ for retirement and 3) are you investing in good stuff.

 

the best benefit my job has is not the opt-out but the ability to carry two additional "deferred compensation" accounts (403b and 457). This means we can put an addition $33,000 away per year pretax (although I recently started putting some of the 403b money into post-tax ROTH 403B).

Edited September 20, 2009 by hegemony

[Kevin20]

certain entities can except their employees from social security. This also means I won't get any SS when I retire (except perhaps a very small amount based on jobs I've held that do pay in)

 

Instead of SS we have a "forced" retirement plan under 401a/414h whereby we have to put 10.5% in and that is matched 100%.

 

 

Though I'm aware of that fact, I have no idea what has been the rationale behind permitting school systems and other organizations to opt out of social security. Is there some explanation? (I mean aside from, "getting votes"...)

 

ignoring the politics, the main justification is it is cheaper for the employer, since these employers are general gov't or non-profits. although not all (not many?) do opt-out.

 

cheaper in that instead of paying 7.125% or whatever for SS and then 6 or 7% toward my retirement it pays 10.5%. savings millions $$ for state gov't alone.

 

put differently, in regards to state and local gov't it saves tax payers money.

 

Well that makes sense as far as it goes but then obvious question then is, why are only government organizations and non-profits allowed to save money in this fashion? If that saves money, why can't all employers and self-employeds be allowed to save money in exactly the same way? It just seems odd!

[nothingtolose]

certain entities can except their employees from social security. This also means I won't get any SS when I retire (except perhaps a very small amount based on jobs I've held that do pay in)

 

Instead of SS we have a "forced" retirement plan under 401a/414h whereby we have to put 10.5% in and that is matched 100%.

 

 

Though I'm aware of that fact, I have no idea what has been the rationale behind permitting school systems and other organizations to opt out of social security. Is there some explanation? (I mean aside from, "getting votes"...)

 

ignoring the politics, the main justification is it is cheaper for the employer, since these employers are general gov't or non-profits. although not all (not many?) do opt-out.

 

cheaper in that instead of paying 7.125% or whatever for SS and then 6 or 7% toward my retirement it pays 10.5%. savings millions $$ for state gov't alone.

 

put differently, in regards to state and local gov't it saves tax payers money.

 

Well that makes sense as far as it goes but then obvious question then is, why are only government organizations and non-profits allowed to save money in this fashion? If that saves money, why can't all employers and self-employeds be allowed to save money in exactly the same way? It just seems odd!

 

Yes, it would be cool if the same extended to the private sector --> a mandatory 6.2% tax-deferred contribution to 401(x) with mandatory match by employer in addition to voluntary retirement saving vehicles such as traditional and Roth IRA/401(k).

The concern about putting that money with a private sector firm or individual workers not investing enough in stocks etc can be addressed by mandating a lifecycle type allocation that starts at 60-80% in stocks and shifts to 10-20% stocks closer to retirement, and they could even put that money in a government run mutual fund corp with a separate balance sheet, as long as the money is kept in an individual retirement saving account and can be withdrawn at retirement up to the amount saved + investment gains accrued on the retirement contributions from that individual worker.

 

But then the fed government won't get any new SS money to bankroll existing SS liabilities and the system would go under much faster than 2040.

Edited September 20, 2009 by nothingtolose

[radi8]

Yes, it would be cool if the same extended to the private sector --> a mandatory 6.2% tax-deferred contribution to 401(x) with mandatory match by employer in addition to voluntary retirement saving vehicles such as traditional and Roth IRA/401(k).

The concern about putting that money with a private sector firm or individual workers not investing enough in stocks etc can be addressed by mandating a lifecycle type allocation that starts at 60-80% in stocks and shifts to 10-20% stocks closer to retirement, and they could even put that money in a government run mutual fund corp with a separate balance sheet, as long as the money is kept in an individual retirement saving account and can be withdrawn at retirement up to the amount saved + investment gains accrued on the retirement contributions from that individual worker.

 

But then the fed government won't get any new SS money to bankroll existing SS liabilities and the system would go under much faster than 2040.

 

Even at minimum wage for 40 years of employment, saving 6.2% with an equal employer match would result in $390,886 by retirement age, assuming 7% interest, with some assumptions.

If, upon retirement, you move that to a less risky vehicle, say at 5%- that'll provide you about a $15K/ year income without touching the principle.

Not great, but not that much worse than current SS benefits either. Having the $390,886 to leave to heirs if you wish would be a nice plus too.

 

The problem is- there are no guarantees. No guarantee that you'll be employed thus able to save for 40 years, or that you'll get a decent rate of return when you do. What happens when 10 years worth of gains are wiped out (as we just watched happen) just a few years before you retire? Can you get along on what's left?

SS OTOH will cover you, even if you become permanently disabled after working just a few years.

You could buy a LT Disability policy, but there goes another chunk of cash every month for something SS provides for the same money you're already paying in.

 

SS was never intended to be a complete retirement plan, it was supposed to be a "safety net" that keeps seniors out of poverty if their private retirement plans fall apart. Because private plans can and do fall apart at times, sometimes at the worst possible moment.

I can see where having that money to invest privately would be attractive.... until you hit 65, have health problems that make FT work impossible, and realize your investment firm bought way too much GM. Hope you like er...cat food.