You Can Count On Social Security Benefits In Retirement

Seafood Buffet Funny FishDespite mentally writing off the value of my Social Security benefits, in the bottom drawer in the way back of my cob-webbed mind, I know it will be there to fund my early bird special seafood buffets when I’m retired.  Sure, the eligibility age for withdrawal might rise from 62 to 67, but we’re all hopefully living longer too.  Besides, who really needs Social Security benefits if we’re saving over half our after-tax income for some many years anyway?  Don’t get greedy now!

The Middle Class of America has given me a tremendous boost in conviction that Social Security benefits will be around for all, forever.  If you read the comments on my post, “Disadvantages of The ROTH IRA: Not All Is What It Seems“, people have come out in force defending the virtues of the ROTH IRA, even though I clearly telegraph why we should not be contributing to a ROTH IRA if we haven’t maxed out their traditional IRA and 401K yet.  To pay more in taxes to an inept and corrupt government that shirks on its promises is an atrocity.

We should ignore the fact that people comment on things even if they know they are wrong, to justify why they did something to make them feel better.  Instead, we should take comments at face value.  Those who support the ROTH IRA most likely have opened a ROTH IRA.  Because they’ve opened a ROTH IRA, they believe that the government will do better with their money than they can on their own.  Remember, only middle class people are allowed to contribute to a ROTH.  Higher earners be damned!

As you know, I have an open mind and always look at both sides of each debate.  My conclusion from the comments in my ROTH IRA post is this: Because so many people support the ROTH IRA, the people of America believe in the efficiency of the government and the fact that Social Security will be fully guaranteed at the age of eligibility.  If people did not believe the government would make due on its promises to fully pay for Social Security, there’s no way people would give the government more of their money to manage!

People Vote With Their Pocket Books 

Even though I am somewhat miffed at folks who are contributing to a ROTH IRA despite my reasoning, I am hopeful that the middle class of America believes in our government so much.  This is why I firmly believe Big Government President Obama will be re-elected again.  I’ve challenged Republicans to bet me whatever they want up to $1,000 to take the other side.  My offer still stands for any of you who don’t believe Obama will get re-elected.

I am also ironically pleased that the income cut off limit for ROTH IRA contribution is so low at $105,000/$169,000 for singles and couples.  This arbitrary income cut-off limit helps protect the thousands of hard working Americans who make more than this from falling into the trap of giving more of their income to the government to waste.  At least the upper income group is being looked after at the margin.

The middle class, defined as sub $122,000 for individuals by the government, is what makes and breaks politician’s futures.  Without the middle class, politicians cannot get elected and abuse their power in only ways that they know how they can.  Hence, no politician will be stupid enough to try and raise taxes on individuals making less than $122,000.  President Obama has wisely set the cut-off attack line at $200,000 for individuals.

The Only Social Security Risk Is Your Loneliness

If you are single and die before drawing Social Security, you’re screwed.  But that’s OK, since you’re dead anyway.  The government wins and you lose because you’ve paid all that money into the system only to reap no rewards.  Oh, it’s kind of like the ROTH IRA come to think of it!  But, that’s cool, because contributors are cool with it too, so never mind!

To clarify, it’s your closest relatives who are SOL if you die before collecting Social Security.  Your Social Security benefits do not get passed down to your children to allow them to draw when they reach the full retirement age of 67.  Your money will be forever kept by the government to do what it wishes.

If you’ve ever thought that there’s too many financial penalties for being married, especially if both spouses are good income earners, then consider the social security benefits of marriage.  If one spouse dies, the other spouse gets to benefit from their social security benefits.

People Love The Government

Given the middle class believes in the government, they also believe that Social Security will be there for them when they retire.  If not, all hell will break loose and politicians will no longer be able to gain and retain power.

People do not feel that it’s wrong the government gets to keep all the Social Security benefits if a single person dies.  If people felt this was wrong, we’d do something about it.  My belief in the American people has been renewed.  I want to thank all ROTH IRA contributors and voluntary extra tax payers for their kindness and patriotism.

If you can count on yourself, then you can surely count on Social Security which is funded by you and your employer to take care of you in retirement!

Readers, after reading this article, and the one on the disadvantages of a ROTH IRA, are you now more bulled up than ever that we’ll get all our Social Security benefits or what?

If you don’t believe SS will be around in full, please explain.

SS Administration Update:

“After 2033, even if Congress does nothing, there will still be sufficient assets (from payroll taxes) to pay about 75 percent of benefits. That’s not acceptable, but it’s still a fact that there will still be substantial assets there,” Astrue, head of SS insisted.

Recommendation For Building Savings:

I suggest opening up a high yielding online savings account with EverBank. They currently offer as of 4/15/2013 a 1.01% interest rate on savings which is 100X greater than the national money market average of 0.1%. Withdrawing and depositing money is easy online as you wait to invest your cash. Don’t let the banks get away with paying you so little!

How To Make Money Quitting Your Job

Regards,

Uncle Sam

Photo: The fish in Venice is a metaphor for a donkey, which is a metaphor for.. nevermind.  2011.

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Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. tom says

    You are correct… not about the ROTH though.

    Social Security should never have been passed for everyone. It’s your own responsibility to plan for the future. It should only have been a safety net for the poor.

    Now that the responsibility of planning for the future has been passed to the Government, you think that people will ever want that back? Hell no. Average Americans are lazy, we don’t want to have to think that far ahead. Let’s not forget the Seniors. They are too senile to understand that Social Security reform WILL NOT AFFECT THEM! They hear SS reform from one guy and they all go out in droves to vote for the other guy (and we all know that they love to vote).

    So you are correct, SS will never be touched. It will go broke, if it hasn’t already.

    So… regarding the ROTH… It all depends. Investing in a ROTH doesn’t mean you are pro government… come on… that’s a huge stretch. It’s about tax rates and tax rates alone. What is your tax rate today… what do you predict it will be in retirement?

    If our combined income is $135,000 today and growing, I’m in the 25% tax bracket. I sure as hell am contributing fully to 401(k) with generous matching, maxing out a ROTH, and going to be receiving 2 pensions. So… is it safe to say that I will be in the highest tax bracket in retirement? Yes. I plan to spend that money like it’s my job.

    So it’s all about tax brackets… nothing more, nothing less.

    • says

      Calculate how much capital you need to generate $135,000 a year in retirement at today’s interest rates, and whatever else you like. Done?

      Now calculate how much capital you need to generate $388,000 a year (start of the top tax bracket of 35%). Done?

      Now calculate how much capital you need to generate $500,000 a year (when you really start paying the top tax bracket, b/c $388,000 doesn’t yet). Done?

      Good luck, and keep on reaching for the stars. America thanks you.

  2. says

    I don’t think there’s any question as to whether or not Social Security will be around; the question is whether or not the payments will be worth anything. The value will be reduced via inflation, or simple reductions in the amount paid to retirees. In a world in which I were made dictator of entitlement programs, the retirement age would go up immediately with no reductions in the amount paid to retirees. It’s not politically popular, but I find it to be the most logical solution to a Social Security deficit. Retirement age would then rise at an exponential rate to make up for all the age increases that should have been put in place 30 years ago.

    I know this provides little comfort, but the finances of the American “safety net” are in much better relative condition than other programs around the world. The United States is one of the few countries that accounts for Social Security like we do, using funds to purchase debt, thereby including accrued deficits in the national debt.

    Earlier generations have dropped the ball. Yet, it is the supposedly greedy and insensitive “me” generation (generation-Y) who are perfectly willing to accept Social Security age increases on themselves just to keep the system in check. So it’s about time that we pull the trigger and make it happen – at least it allows for the financial system to start pricing in a change for public cash outflows.

    I don’t think the middle class likes Social Security as much as you’d think. Given that the “middle class” pays a much greater percentage of their annual income into the Trust, the middle class “invests” much more of their income in a poorly paying “investment” that is Social Security. Social Security is just another reason for the wealth gap – it’s a crappy investment to which the middle class devotes a much larger percentage of their annual income. “Middle class” people do recognize this.

      • says

        I can’t say I did, but I’d probably agree with the message. I think part of the blame can be put on the fact young people don’t vote because if they did, pandering politicians would change their attitude to reflect a different electorate. On the other hand, there is the overarching view that seniors are “just getting back what they paid in,” nevermind that they already voted for the many years of politicians who spent what they paid in.

        It’s a “have your cake and eat it too” kind of thing. The money is gone for good – there’s no cash in the social security trust. It’s like trying to spend more money from a overdrafted checking account and justifying it because you put your paychecks in it every month. It drives me nuts that Social Security tends to be a topic that no one wants to have a real, truthful conversation about. It needs fixing, but it’ll just get ignored.

    • says

      I truly believe people 40 and below have all mentally written off SS in retirement 25-45 years from now and that is GREAT. People will work harder to take care of themselves, and when we they do retire, they will be pleasantly be surprised.

      I am pretty confident that FULL, or as as close to FULL SS benefits that were promised to us will be there. However, that includes raising the min drawing age.

  3. says

    I don’t know much about SS in america but from the way you keep talking about it it must be a great benefit! Can you really retire on that alone at 62 (or 67 later)?

    Over here you can’t cover a lot without your own savings, although if a couple can live on $2000-3000/month you can get a good part of that from the government as long as you earned the right income for long enough. That might just be the cost of certainty since the CPP (which is one of the main forms of government income) has contributions that are actuarially sufficient to cover future payouts and past shortfalls.

    If you really only have to cover yourself until your 60s it makes sense to take more risks with your portfolio since it doesn’t have to last forever. I guess if you put yourself into the bottom ranks of income later on you’ll have a lot of supporters! And until then you must be happy with anything that gets someone else to pay a bit more taxes so you don’t have to :)

    • says

      It’s not bad actually. The MAXIMUM SS benefits is around $2,600 a month for someone who earned the maximum for contribution ~$100K/yr and who withdraws at 66-67.

      I could live off $2,600/month in today’s dollars with no debt. Add another $2,600 a month for my spouse and that’s good living!

      • says

        That’s about twice the contribution limit we have, but otherwise similar ratios. Based on numbers in that range it could even be well-managed!

        For two people that puts you in a good income range.

  4. says

    The cynic in me feels that I am getting sucked into a trap! Knowing how our legislators just want to be reelected and older people vote. That in itself guarantees Social Security will be there. It may change such as increasing the age for retirement, but it will be there. Increasing the age seems the most likely to cure the problem.

  5. says

    “If you don’t believe SS will be around in full, please explain.” – Sure!

    I think that Social Security will end up being around for all of Generation X and Y, because, as you said, people are really into the program now. However, the promised benefits won’t be around – members of those generations won’t be getting the benefits they were promised when the money went in.

    It’s only realistic to think that way – the ratio of payees to recipients is 2.9 to 1 right now, which is just barely sustainable with current funds. So, we have a few options – increase the retirement age (like you said), reduce current benefits, inflate faster than CPI (and make it so CPI doesn’t show the changes).

    Of course, I think that SS will be around for a long time – but people need to see it as supplementary income, not the top choice for retirement savings!

    • says

      With the amount of enthusiasm the middle class has for contributing to a ROTH, I am now convinced full benefits will come to us, after a gradual increase in age limit of course.

      I see SS as zero income… but now, I’m getting excited by the fact another couple thousand a month in today’s dollars will be coming in!

  6. says

    I think it will be there. It may be in some weird state of uncertainty for a while, but it will be there.

    The real problem is that people want to live longer but don’t want to pay for it. You see it in healthcare and entitlements.

    The people who get screwed, as you alluded to, are those who die young and demographic groups that have lower average life expectancies.

  7. says

    You cheeky monkey! Roth IRA diatribe aside…I firmly believe that SS is an important program to our society and therefore, it will be saved/resurrected. I also believe, there are impending “cuts” to the program in 4 different ways: 1) Further changes in the retirement/early retirement age, 2) Further cuts in benefits for “high earners”, 3) Raising or removing income contribution cap and 4) “taxation” of retirement assets, ahem…Roth IRA. I maintain that the cuts should happen early and across the board. It isn’t “fair” that the youngins take it on the chin for the old people who borrowed all the money from the trust fund.

    One thing I would add is that if you die there are benefits for your survivors. We have dug through the SS code and pulled out the actual benefits, and it should be posting a week from Thursday. Highly unexciting, but it is nice to know what you get.

    It is quite easy to stand back and say, “screw you I got mine” when things are going ok. But, it is a program I hope not to benefit much from, but it is there if I need it.

  8. says

    Do I think SS will be around in full in the future? NO WAY! Why? They are run by a lot of incompetent government employees. But then again, I am a little peeved at them right now so maybe I am not the best judge of their sustainability. In fact, earlier today I wrote this post in a fit of anger: http://www.financialsamurai.com/2012/04/25/social-security-benefits-retirement/ So imagine my surprise when I came here to see what you were up to these days and saw your SS post. Fate?

  9. says

    I have no doubt that social security WILL NOT be around in the form it is today. Just yesterday I saw a news report that stated the reserve funds are now projected to be depleted by 2033, whereas JUST LAST YEAR it was projected to run out at 2037. For those that can’t do math…that’s 1 year later and 4 years cut off the projection. Why? Well, it’s mismanaged and the 2% cut in employees contributions for the last 2 years plays a huge part.

    Social security WILL be around forever simply because people don’t save for their own retirement. If it wasn’t around then 60+% of the elderly population would eventually be homeless. I believe they’ll do a combination of pushing back the “retirement” age and add in means testing.

    It wouldn’t be America if we didn’t throw in some sort of “tax the rich and give to the poor.” Socialism baby – full steam ahead!

    • says

      The 2% SS tax reduction over the last 2 years has been paid for out of the general fund, not the SS trust funds. So, in theory, this reduction in contributions does not affect the solvency of the program.

      a “what’s the difference” argument is valid since the gubmint started mixing the two, but it in no way affects the calculations you allude to above.

  10. says

    For me, the issue is much more complicated than just traditional vs roth. My company does not have a 401(k) and does not match. So how in the heck am I supposed to retire, ever, if I only put $5000 before tax or $5000 after tax each year?!

  11. says

    First, I think there will always be some type of Social Security, with higher age requirements and less benefits than today – but there will be something (but like you said, a corrupt government may not make it another 50 years until I need to get my benefit…).

    Second, I highly recommend a Roth IRA for anyone who pays less tax now than in retirement. I plan on being much wealthier in retirement and older age than now. Also, I highly expect tax rates to rise in the future given they are at historic lows right now. So, if I contribute money already taxed at 25%, and withdraw it free in an environment where taxes are 35% or higher, I consider it a win. However, like you said, the government could change the rules or corrupt something, but I think that there would be too much opposition to that to do anything.

      • says

        Yes, a lot! But I’m sure rates will go up. Right now, 35% is for $388k plus and you would need $10 million plus to earn dividends/interest to make that amount. However, I can see that being the rate easily for $85-$178k, which is currently 28%. I bet the top bracket will climb to around 45% or so in the next two decades, and I think we will see special rates like dividends and LT Cap Gains go up as well (they continually talk right now of raising them to 20%).

        Just in the 1980s, the top tax bracket was 70%. If you made $60k, you paid 50%.

        My belief is that these low rates are not sustainable, and they will rise back up to historical norms (maybe not as high, but definitely higher.

        • says

          You really think the government will assault the middle class $85-180k income earner? How will our benevolent politicians get re-elected?

          You don’t think people vote with their pocket books?

          We are in a different time and i not believe tax rates will go up by any significant amount in out lifetimes. Once you give, it’s impossible to taketh away!

          That said, I’m pumped you are bullish about your capital accumulation abilities!

  12. says

    As someone who is relatively new to you blog, can I say thank you for how well you bring in past blog posts. I just bounced through 5 different posts in the past hour. From relying on social security, to how to retire early, to how to save if you don’t make much, and finally finishing with how much someone should have in their 401k by age.

    I like to look at SS as just another potential “income slice” that I will have in retirement. Hopefully it will end up being just an insignificantly small slice. I am still not 100% convinced on the ROTH yet, but I also already maxed mine out this year and have been preaching it’s praises for a few years now. The good thing is that you are making me THINK about it.

    • says

      Glad you found the navigation of my blog relatively easy. I took out the related post plug-in b/c it was really slowing down my site.

      I don’t include SS as part of my income slice… but now, I think I should!

  13. says

    I still don’t understand the Roth IRA hate.. I know you plan to retire in a state without income tax, but I think you’re in the minority on that one. If I stay in Cali, and taxes stay the same, I’ll pay the same amount of taxes contributing to a 401k or roth ira. If I make more, or taxes go up, I save money..either way, your federal tax is the same.

    That aside, SS can not be sustained in it’s current state. Kind of reminds me of the pension situation. You can never guarantee a certain payment level. I think SS will have to be reformed to more of a 401k style plan.

  14. says

    I’m thinking SS will still be around when I’m in my 60’s but I agree with you that the age for receiving benefits could be later by then. I’m certainly not going to plan on relying on it 100% to survive because I’m just not comfortable being dependent on things that are out of my control. I’m glad my parents are able to collect SS though as they really need it.

    • says

      I am damn glad our parents are able to get full SS benefits!

      And thanks to the middle class so enthusiastically voting for big government and paying more in taxes, we should get full benefits too!

  15. says

    I think that SS will be around in some form or another. But as life expectancy has increased, the age of retirement has not increased proportionally, which results in problems. SS still has a surplus stored up, at least on paper, but will be drawing from it over time.

    I don’t think people should count on any external form of support for retirement, such as SS or pensions, and should ensure that the money that they have control over can produce enough income to support their retirement needs. Any income on top of that like SS should be viewed as an added comfort, imo.

  16. says

    Sam, I believe that Social Security slush fund will disappear in 2041 or so, but I am wondering how Roth has any nexus to that. You wrote this, “Because they’ve opened a ROTH IRA, they believe that the government will do better with their money than they can on their own.”

    Believe me — like you — I am against government taking control of any aspect of our lives, but Roth IRA is post tax funded retirement account managed by YOU, the tax payer and not the government. Am I wrong?

  17. Darwin's Money says

    I don’t think valuing a Roth IRA has anything to do with thinking having confidence in the government or liking how they manage money or whatever. There are several benefits of a Roth over a 401(k) that I like. These include:

    – Flexibility – Most people’s 401(k) plan investment options suck. Someone who wants diversification outside a typical stock/bond split is left hanging. No commodity, very little international (especially no emerging market). Why? Plan sponsors don’t want to be sued. So they offer generic crap. See next bullet.
    – Better Returns – Aside from the fact that the investment options are usually very limited, they are very high fee and THEN on top of it, there are often hidden fees that aren’t even disclosed. This has been so problematic that Congress actually forced better disclosure, which hasn’t taken effect yet. But this demonstrates there’s a problem.
    – Tax Rate Assumptions – I make the assumption tax rates, especially with what I’ll be drawing in retirement, will be considerably higher than they are today. So the 401(k) tax bracket now may be a full 10% or more lower today than the tax rate I get to withdraw Roth IRA contributions from in the future.
    – More on Flexibility – Oh, and the flexibility to use for college is an understated flex benefit. “Early distributions from a Roth IRA prior to age 59½ are not subject to the 10 percent penalty tax if they are used to finance adjusted qualified higher education expenses, or AQHEE, and the account has been established and funded for at least five years.”… Additionally, these assets are not counted in financial aid calculations whereas 529 assets are. So, sure, you shouldn’t use all your retirement money to put your kids through college. But IF you want the flexibility to tap funds to use for college, while the Roth offers you that capability, the 401(k) clearly does not.

    Simple solution though is to max both if you can swing it!

    • says

      Good points. I do like the idea of maxing out the 401K and maxing out the ROTH if one can do it, and then save more after tax money.

      The flexibility to draw from the ROTH is a good one, in case of an emergency. Although, hopefully, that’s what your savings is for.

  18. J says

    A little late to the game, but what’s your take on self-directed IRAs? I’m getting a bit tired of only being able to invest my IRAs into the usual stock, bond, etc. and the idea of being able to use my IRA to buy real estate as an investment property sounds like a win/win to me.

    Did a search of your articles and didn’t see anything on this, so would appreciate your thoughts. Idea for a new article, perhaps?

    Thx.

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