The SSA withholding is 6.2 % for employee, matched by employer, for a total of 12.4% of income up to the magic cap, around $90K today. The Medicaid withholding is 1.45%, matched by employer, for a total of 2.9% with no cap. So, a total of 15.3% is withheld up to the cap and 2.9% thereafter.
Let’s see if that changes my numbers any. (how do I link back to an earlier post?)
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Social Security Reform – For 2003 there was about 533.5 billion dollars collected from 156 million workers (plus employers).
That comes down to $3420 per worker/employer or $1710 per worker per year. (Employer matches an equal amount per worker to SSA)
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Nope, I was looking at totals and not percent contributions. From What I hear, they are talking about up to 4% of the 6.2% contribution to a maximum of $1000. That doesn’t even seem to be worth the time or effort to manage. 4%/6.2%= 64.5%. So they will allow the average worker to divert 64.5% of $1710 to a private account or $1103 per year. But that’s over the $1000 limit. 58.5% would max out to $1000. 3.6% withholding diversion will meet that. So what will that do to the received SSA benefits 30-40 years down the road.
The Congress, in its infinite, partisan, wisdom, has already developed an answer to the “Private Account” It is called an Individual Retirement Account (IRA). The IRA is managed by the individual and money contributed now is non-taxable. The proceeds, when drawn out post 59.5 years old, are taxed when withdrawn (substantial penalty for early withdrawal.) The IRA can be passed on via inheritance. It belongs to the contributor. People are entitled to contribute up to $4000 a year now. That amount should grow with inflation.
So, why don’t we stop planning to downsize the SSA fund contributions with private accounts and promote IRAs? I think Congress, iiipw, can do things to promote the use of IRAs, like mandating automatic payroll deductions to IRA accounts UNLESS the employee opts out or requests a lower deduction (I think the base deduction should put the max allowable into the IRA over the course of the year.) And the Employee has to re-opt every year.
The main reason for this is to get people thinking about their retirement plans. SSA is a retirement supplement. People shouldn’t plan on surviving on it. And the way corporate America is going today, folks will be very lucky to have any retirement benefits unless they organize the benefits themselves. At least I didn’t have to worry about my company’s pension plan being sundered when it declared bankruptcy because it didn’t have one to sunder. (of course, my 401k funds took a hit when all that company-contributed stock went to $0, but that’s another story.)
Regarding the pending SSA cash-flow crunch that opponents of SS call a “crisis” there a couple of hard choices to make.
First, I think that contribution cap should disappear.
Second, benefits should be reduced to follow inflation and not income. (it’s a supplement, not a wage)
Third, the age to collect benefits needs to be raised to that age where life expectancy is, say, 10 years more. (If someone who reaches 65 can expect, on average, to live to 80, then 65 is too young to collect benefits. If someone who reaches 71 can expect to live to 81, then they can start collecting. This all depends on actuarial tables and averages and not on individuals, but SS is, effectively, an insurance program. Others can argue about the male/female life expectancy differences. I think when you get to that age it shouldn’t matter.)
Fourth; Stop using SSA money to cover government debt. Keep the SSA Trust fund as a separate account from the treasury general funds.
