Here is the email I received last week regarding Federal benefit Checks otherwise known as Social Security:
SOCIAL SECURITY NOW CALLED 'FEDERAL BENEFIT PAYMENT'/ENTITLEMENT!
Have you noticed, your Social Security check is now referred to as a "Federal Benefit Payment"?
The government is now referring to our Social Security checks as a Federal Benefit Payment. This isn't a benefit...it's earned income! Not only did we all contribute to Social Security but our employers did, too.
It totaled 15% of our income before taxes.
If you averaged $30K per year over your working life, that's close to $180,000 invested in Social Security.
If you calculate the future value of your monthly investment in social security ($375/month, including both you and your employers contributions) at a meager 1% interest rate compounded monthly, after 40 years of working you'd have more than $1.3+ million dollars saved! This is your personal investment.
Upon retirement, if you took out only 3% per year, you'd receive $39,318 per year, or $3,277 per month.
That's almost three times more than today's average Social Security benefit of $1,230 per month, according to the Social Security Administration (Google it - it's a fact).
And your retirement fund would last more than 33 years (until you're 98 if you retire at age 65). I can only imagine how much better most average-income people could live in retirement if our government had just invested our money in low-risk interest-earning accounts.
Instead, the folks in Washington pulled off a bigger Ponzi scheme than Bernie Madoff ever did.
They took our money and used it elsewhere. They forgot that it was OUR money they were taking. They didn't have a referendum to ask us if we wanted to lend the money to them.
And they didn't pay interest on the debt they assumed. And recently, they've told us that the money won't support us for very much longer. But is it our fault they misused our investments?
And now, to add insult to injury, they're calling it a benefit, as if we never worked to earn every penny of it. Just because they borrowed the money doesn't mean that our investments were a charity! Let’s take a stand.
We have earned our right to Social Security and Medicare. Demand that our legislators bring some sense into our government.
All right so all the claims in here are pretty outrageous right? Are you upset yet? Or are you happy the program is going away? There are multiple responses you can get from this. Some might get upset that there are problems and they could lose that government safety net. Others might be happy it’s mismanaged and will collapse as they don’t believe the government should be supporting people will rejoice when this happens.
However, all of these and none of these are true and let’s explore really what Social Security has to offer. Understanding how Social Security works is extremely important so you don’t look at it as an entitlement but more as a support check if it will even be around in its current form. Social Security was first introduced in 1934 and had 65 as the retirement age. Until 2003 those ages were not changed and the program got expanded drastically. Social Security was a voluntary program where you could opt into contributing to the program now everyone pays into the program whether or not you want to. It may come out as FICA if you are employed or you’re paying the full required percentage of your income if you’re self-employed. Social Security was supposed to be a separate trust that was never touched by Congress except for these payments but in the 70’s it was moved into the general fund and some, not all, of the funds can be used for other purposes.
While this hurts social security, what hurts it more is the longevity of the recipients and the sheer number of people collecting the benefits. Remember when it was introduced there were two key things that figured into the formula. The average life expectancy of males was 59/12 back then and less than 1% of the population made it past 65, thus the number of benefits was severely reduced. Government rarely does anything for the altruism of helping its people, they usually do something that gives an impression of altruism but is really for their own political gain. The other thing is women could not collect benefits except through survivor benefits and their average life expectancy was 64 so there was not a long time there either for benefit collection. However, the population aged, men and women started to work outside of the home and collect checks and then in the 70’s and 80’s there started to be triple or quadruple the expected collections from the fund as now you had both men and women collecting benefits not just one. This was fine as there was a population boom and there were more workers than retirees contributing benefits.
This leads to the second point. Yes the author is correct there is 15% contributed each year in Social Security Tax (it’s a tax on your income not a savings contribution let’s be clear on that) however where they stray from reality is their assertion that the money contributed builds up a retirement account for them. It doesn’t, the money where half of the percentage comes from your paycheck the other half from your employer doesn’t get built up for you, and it goes directly to fund the current retirees. As the baby boomer generation ages and more and more collect benefits there will be fewer people working and there will be a large unbalance between retirees and workers paying for the system. Now this upsets people as this is a benefit they feel they are entitled to. That is why it is called an entitlement; we have gone from a voluntary program to now a mandatory program that in agreement with the author has been mismanaged. The key thing to be clear here though is social security is not a pension account or a retirement vehicle, it was meant to create a social safety net for those that had no extra means.
The fact is most workers now have retirement plans at work; access to savings vehicles and it is up to them. I understand markets are up and down and there are worries about sustainability of the investments but a prudent course, even conservative long term systematic investing will pay off. Will you still need Social Security? It is a definite possibility but the amount you would need to draw might be less. We too often want to get rich quick and take unnecessary risks, but Social Security or now Federal Benefit often acts as the makeup for not taking personal responsibility.
Ask yourself what retirement plans have you done? I often see clients who are 55 and have nothing to retire on and am 55 and want to quit work at 60 and travel the globe. Is this realistic? NO, but there is almost an outright explosion when I tell them it can’t happen unless they do X, Y, and Z which they can’t afford or don’t want to do. The time to plan is when you are in your 20’s, 30’s and 40’s. What keeps us though from planning? These are strictly my opinions but here they go, first in your 20’s you’re struggling to get by and can’t imagine extra money leaving your paycheck. In your 30’s you have young families and need every dollar you can get, and in your 40’s you’re focused on education. SO you get to your fifties and now what are you going to do. Retirement maybe so far off we don’t want to think about it, but it is something that needs to be thought of. My retirement plans have been changed and I’m not near where I want to be on my plan but I have money saved for it and plan to continue to grow it further. Will what I have been enough over the next forty years, no but it’s a start and I am looking at adding more each and every year.
I urge you to take a look at these emails and research what they truly are saying and find the kernels of truth and highlight the falsehoods. Get upset about the true facts not the made up one. Should your social security be managed by yourself as a forced retirement instead of being a pool of money? Should it stay as it is? I think those answer depend on what we do as citizens to prepare for our own retirement. It’s time we start taking steps to succeed on our own and not wait for others to help us as they won’t.