If you had to tell me right now how much you pay into Social Security each month could you do it? Many people can’t. If you are employed, you are paying 4.2% (temporarily down from 6.2%) of your income into Social Security.
Did you know your employer is also paying money into your Social Security on your behalf? They are currently paying 6.2% of your income into the system. That makes a total of 10.4% of your pay going towards social security.
If you make $4,000 a month at your job, then you and your employer are contributing $416 a month to your social security. That’s a pretty decent size chunk, right?
Low Expectations for the Status Quo
Here’s the question that creates a contrast: what do you expect to get from social security by the time you retire? I’d be willing to bet that many of you don’t factor in social security when it comes to your own retirement planning. I don’t.
Let’s go to Facebook…
- Do you think Social Security will be around when you retire?
- If so, do you factor in social security when doing your retirement planning?
As an aside, if you were required to pay that 4.2% each month by check do you think you’d think differently about Social Security? I think our current payroll tax system helps to disguise what’s going on.
So what’s wrong with Social Security? I think U.S. Senator Marco Rubio said it best when he said,
“When Social Security first started, there was 16 workers for every retiree. Today there are three workers for every retiree and soon there will be only two for every retiree.”
There’s your major problem. Too many people need their promised benefits and not enough people are paying into the system. Now you see why people joke that it’s a ponzi scheme.
The Personal Social Security Account
So how do we fix Social Security? Newt Gingrich has risin to the top of the group of Republicans vying for the Presidency. If Gingrich stays on top for long you’ll begin hearing a lot more about his proposed plan to fix Social Security, at least for young people.
Gingrich basically wants young people to have a choice to take a portion (he previously stated half or 3.1%) of their contribution to Social Security and put it into a private savings account.
Gingrich’s plan is at least partially based on a model that has worked. Galveston (TX) County employees opted out of the Social Security system back in the 70s. They formed their own retirement savings plan and, while not perfect, it has outperformed Social Security in many ways.
I like this idea because it’s not a full-on privatization of social security, and thus would stand a better chance of getting support from both political parties. I also like it because it brings transparency and more personal responsibility into the Social Security system. Lastly, I like it because it partially removes the Government out of the place of power when it comes to my own retirement money.
What about you? Want an extra 3.1% to save for your retirement each month?
Image by DonkeyHotey