It’s hard to fathom why so many people discount the value of Social Security. It’s weird actually. I get it, fear is ingrained in us as human beings. We’re always looking for that lion that could jump out of the bush and ambush us. But, at some point, don’t you have to assume if you’ve walked by that bush a million times with no injury you will be fine the next time you walk by?
Yet, when it comes to Social Security, all we continue to hear is doom and gloom. And yet, there is NO EVIDENCE for this. None whatsoever.
I get the insistence of fear-mongering by the financial industry. Heck, they have every incentive to scare you in order for you to invest more…with them! “Social Security Won’t Give You Security” says a prominent guy in the advisory business who reaps literally millions from the people who pay him for client leads.
Keep harking on the “fact” that Social Security is doomed and at some point people will want to know what they can do and thus will hire this guy’s chosen advisors to steer them right. Works like a charm…for that guy and his band of advisors.
Academics also love destroying the solvency of Social Security as a way to get more funding for “research” on other ways for people to secure retirement. It just so happens a lot of these academics are in favor of getting rid of private retirement plans outright, such as the 401k, and turning it all over to the government. When that happens these same academics would play a prominent role in the design of the “new” retirement scheme. Remember MIT’s Jonathan Gruber with Obamacare?. Why that guy is not in jail for his fleecing of the American taxpayer boggles the mind.
If only someone would have warned us about the Educational Industrial Complex.
So, we have the advisory industry and the academic industry both with perverse incentives to spread fear about retirement in general and Social Security in particular.
And yet, watch this video from Morningstar. I know, I know, Morningstar is in the financial industry. And here they are talking about how Social Security is not actually doomed. Doesn’t this disprove my claim that the advisory industry is fear-mongering?
Well, Morningstar has always been one of the good guys in the industry. They shoot straight, mostly. (I take issue with their ‘green investing stuff’ which promotes conferences all over the world to talk about sustainability. Can’t be green and fly.)
When we watch that video from Morningstar, we find out, again, is that the fix to Social Security is quite simple. Just increase the payroll tax by 2.7% in total or 1.35% to the employee and the employer. Done and done.
Now, be advised, this fix assumes the unemployment rate rises to 5.5% and stays there for DECADES to come…. Hard to imagine that happening. So, in actuality we probably don’t even need a full 2.7% payroll tax increase. But, be it as it may, the fix is still quite simple, raise the payroll tax.
No, raising the cap on the Social Security taxation is not a fix. There are people who want to tax anything that moves and thus these people LOVE the idea of increasing taxes, anytime they can. But to hammer folks who make over $130k or so with an extra 6.2% payroll tax and their employers with the same might make the class warriors feel good but it does nothing for the long term solvency of Social Security.
So, what would a 1.35% payroll tax increase cost? Well, the median household income in the US is around $60k a year. 1.35% on $60 equals a tax increase of $810. Taken over 26 paychecks that equals $31.15 a paycheck.
$31.15 to fix Social Security. Yes, the employer pays that too. Thus the total cost to the employee and employer is $62 a paycheck. Pardon my French, but Whooptie-freakin’-do. That’s not a huge tax increase, not when there is actually a HUGE benefit behind it, to “save” Social Security.
You make $100k, your taxes go up by $1350 total or $52 a paycheck. Wow, you are destitute now. (Being sarcastic there, if you didn’t get it).
I would tell President Trump he should run on this in 2020. You KNOW the Dems are going to, they always do. But they’ll do it in a class warfare kind of way. A Social Security fix doesn’t need to be an US vs. THEM thing. Simply run by stating Social Security needs a fix. It doesn’t need to be extraordinary. We just need the EMPLOYER and the EMPLOYEE both to contribute $31 bucks more a paycheck and then we’ve solved the Social Security “crisis”.
Once fixed we can finally go back to arguing over the important things, like whether you need $10 million to retire or just $5.5 million… BWHAHAHAHA