Social Insecurity

Good News / Bad News
The Houston Chronicle reported that social security checks will be going up by 3.3 percent in 2007. The cost of living adjustment is good news for many people that are depending on Social Security as part of or all of their monthly income. The increase will provide more money for health care, energy costs, food, and other living expenses.

The bad news is that the trustees of the Social Security trust fund predict the system will be broke within the next 40 years. To all of those that have been paying into Social Security, this means they will never see the promised benefits of the money they contribute.

An article entitled, “Misleading the Public: How the Social Security Trust Fund Really Works” does a good job of explaining how the Social Security trust fund is really just an accounting game being played by the government. The politicians have been borrowing from the trust fund and using payroll taxes to fund the money that is being paid out. As baby boomers retire, the dollar amount going out of the system will exceed the amount coming in. At that point the government will have to start to pay back over $1 trillion it has borrowed from the trust fund.

Social Insecurity
For the generations following the baby boomers, the problems of Social Security have both immediate and long term effects. For the immediate future, we will be paying more taxes. According to a recent announcement by the government:

11 million taxpayers will pay higher taxes next year because the maximum amount of Social Security earnings subject to the payroll tax will rise from $94,200 to $97,500. In all, an estimated 163 million workers will pay Social Security taxes in 2007.

The long term effects are even more drastic. By the time we reach our late 60’s we will have paid thousands or hundreds thousands of dollars into the system and will receive none of it back. We will not have a social security net to catch us as we age and slow down. There will be no one to look out for us but ourselves.

The Solution
The politicians making “reforms” now won’t be the ones holding the bag when the time comes. Now we must take matters into our own hands. Armed with the knowledge of what’s to come, our only option is to prepare. What can we do? We have to increase the amount we save/invest for the future and reduce the amount of taxes we pay.

Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

All posts by Ben Edwards