Wednesday, July 06, 2005

Thoughts on Social Security

One of the big arguments of the past few months has been how to fix social security, when it becomes necessary (which may or may not be right now). Two elements have been suggested. The first is to divert some of the Social Security money into private accounts. This is said to make people part of the ownership society and to give them control of their own investments. It seems to me to have at least two problems: owning a fund is meaningless unless you can take the money out of it and being able to do that would ruin the intent; also, most people who don't love playing with money on the big board and its clones would have difficulty getting it right. Even I, who developed my own system for doubling my money in mutual funds a few years ago got bored with the whole prospect of keeping an eye on things. Playing with money is less adventuresome than playing golf. Even so, we already have accounts that people can put money into. They are called IRAs or 401Ks and they do the same thing as Social Security.

The other answer being proposed by the administration is to index social security payments to income at the time (as I understand it) you are earning it. Thus, those who earn more would draw less after retirement than they might otherwise. However, most people don't seem to realize that we now have an indexing system in place. It is called taxation and people don't like it. But it works like this: if, as a single person, you add together half of your social security income with all the rest of what you have coming in (pensions, IRAs, 401Ks, earning from jobs, etc.) and it adds up to more than 25,000, you pay taxes on your social security income up to a maximum of 85% of that income figured as to your tax bracket. That is indexing as well as what is being offered by the Administration.

It seems to me the quickest fix for Social Security is to do what we have done in the past, which works, and index the maximum amount you pay on. Therefore, the maximum amount, instead of being fixed, would rise as has income, deductions and exemptions. Payments also rise with cost of living. So why not set an indexing program for that amount of income that people pay on rather than keeping it at $90,000?

Now, let's talk about Medicare costs....


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1:33 AM  

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