Friday, July 15, 2011

Do You Feel Entitled to Social Security? That Could Be a Good Thing

Carla Carpenter Retirement Party
Whether you worked one job or more for your career, you may have paid for every bit of your retirement.
Picture above uses Flickr's native placement and attribution code. Rollover for photographer's name. Click on it to go to original page to examine various options

If you feel entitled to Social Security when you grow older, congratulations, because you are.

Do you know why? Because you paid for it.

For employees the FICA for 2010 (a year you may have already filed for or for which you extended and are planning to file) the FICA included 6.2% for Social Security for wages up to $106, 800 and 1.43% on all wages for Medicare. We'll skip Medicare for now. Your employer contributes a matching amount for Social Security and each are liable for up to $6621.40 for 2010. Employers have long complained about the matching payroll tax and claim they would rebate the same amount of money to their employee's wages if the government would just not make them match it. That of course is baloney because if they were going to pay employees the same amount that they saved then there would be no reasons to change anything. But I do believe them that they take it from your pay now. So it becomes part of what you are paying for your retirement.

For FY2011 the employees' share of the Social Security tax has been reduced from 6.2% to 4.2% as a result of a bill passed last December.

But let's add all you pay up at the normal rate and see what you might have paid for your retirement through the payroll taxes and the supposed amount your wages were reduced by your employer for his or her portion of them. For the years in which each portion was 6.2% you paid 12.4%.

Lets say you make $40,000 in your household for a year. Now if we add in the employer's portion of Social Security you could say you made $42480. This is probably just getting by in a cramped apartment in many cities, but you're paying $5268 a year in FICA Social Security taxes. If you do that for 40 years you will have ended up paying $210720 in Social Security taxes, almost 5 years worth of wages! But wait a minute the government took your money and kept it for that long time. If you had borrowed that from bank or a credit card you'd pay at least 20% a year for that, and maybe over 30%.

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Notice I have replaced  these old calculations with a more accurate calculation below the next line of slash marks.

But lets give the government the benefit of the doubt. We will have to charge them 20% a year though because you are a working class person who struggled to raise your children, not money- rich China.

There is probably a good formula for this, but I'm going to take half the money you have to give to the government for your retirement over 40 years work and multiply it by the cc rate of 20%. and we get $23179 interest per year. Over 40 years that makes $927,160 far outstripping the original principle. Now we add that to the principle and we get $1,137,880.

YOU ARE OWED OVER MILLION DOLLARS FROM THE GOVERNMENT FOR YOUR RETIREMENT IF YOU ONLY HAVE A WORKING CLASS WAGE.

I have seen some calculators on another computer that make easy to make almost the same money with only 5% interest, but this machine doesn't have Java installed and I can't use them.

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New calculations:

 Note: I have now found a Compound Interest Calculator which shows that 6% interest on your tax if put in a savings account compounded annually would yield $815,286.03 enough to live for another 20 years on your current salary, plus some.   Of course, the government doesn't collect real interest (and in the past few years no interest except from people who can't pay their taxes it seems) or apparently offer any.  

I don't believe you even get that back if live 20 years past the day you get your cheap fake gold watch. In fact we can calculate that if you were compensated for 20 years after retirement you would get $800,000 if you got your full salary, which you don't. Since retirement for many does not start until a person is 67 that means you still haven't been paid back at 87 and a lot of people don't even live that long.

Of course, you may work your way up to a better wage but that just means you will be paying more into the Social Security pot and hoping to live long enough to get your fair share out.

Pundits and Politicians are adding another fake idea argument to the "Entitlements have to go" game, that people are living much longer lives these days, but that is a statistical folly. The fact is that life span is an average measurement and childhood mortality has been reduced so much since the days when Social Security was started, that the average life expectancy actually is measuring more workers to help pay for the retirees rather than only a larger drain on the Social Security system.

There may need to be some tweaks to the system like making everyone pay their full share instead of stopping the wealthy from having to pay more after $106, 400. After all some famous football players start taking disability payments of millions a year right after they leave the league and that comes from Social Security. It's time they paid for that extended retirement with their full share going into the pot. You though pay plenty for your retirement and probably a little too much.

The GOP is trying to paint average Americans as wanting to be like a modern day Little Lord Fauntleroys who expect to live off the work of others in their retirement so they use the term "entitlements".

Little Lord Fauntleroy prospered because of entitlement (in that English nobility are paid by the taxpayers and had other advantages thrust on them in the past that they did not earn). The whole rags to riches story of the child depends on that British scam on the bulk of their people. Frances Hogson Burnett's Little Lord though was a poor fatherless American child whose own mother refused help from his noble British grandfather according to Wikipedia.

But just the word "entitlement" pins the average American as a profligate, lazy jerk who expects the government to support him for decades near the end of his or her life.

Tell the GOP to get real. You earned that retirement money.  It's yours.

You've already paid for it.