Changing Social Security
For my entire career, one of the biggest issues I have been addressing has been how to help people avoid becoming victims of the dishonest and financially unsound Social Security system. It has always been inevitable that the system would be changed to deny people all of the benefits they have been promised. This has already been done through taxation of benefits for many recipients (contrary to the original promise) and raising the age of eligibility for full benefits so that more people will die off before even recovering what they have paid in.

As I have always said, any free market company that offered a retirement plan similar to SS would be charged with fraud and run out of business. It's different when our rulers in DC pass laws forcing people to participate in what is no more than a government run Ponzi scheme.

My long running prediction that SS benefits will be denied to people who are considered to be wealthy (earning more than $25,000 per year), and thus not needing any assistance, still stands and is even becoming more open, as in this call by Alan Greenspan to reduce benefits. He doesn't mention anything about reducing the huge amounts of taxes required to be paid into the SS system. Everyone is expected to pay in more and more in current taxes for fewer and fewer potential benefits.

I'm not a big fan of plans such as this, to allow people to set aside a tiny portion of their SS tax for privately controlled investments, but still send the full 12.4% to our rulers in DC. What most people fail to realize is that, while the current SS tax rate of 12.4% doesn't seem like a lot when compared to the 15%, 25% and 28% income tax brackets most people fall in, that is very misleading. The 12.4% SS tax is assessed on the gross pay, while the income tax is charged against taxable income, after deductions and exemptions. This makes the effective tax rate, and the actual dollars charged, much higher for SS tax for most people than they are for income taxes.

As I've described over the years, there are several ways in which one's business and financial affairs can be structured to minimize the amount required to be paid into the SS system. While it is usually more of a hassle than not doing those things, people who are holding their breath waiting for Bush or any of our rulers in DC to magically fix the entire mess are literally flushing thousands of dollars down the crapper each year they wait to take those steps on their own.


- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 2/25/2004 10:55:00 AM Send this post: