Social Security’s New Math: Who Loses? Everyone Loses!

Filed in Politics, Tax, Savings by on February 18, 2010

Social Security’s New Math: Who Loses? Everyone Loses! I have long shown clients that Social Security was a terrible investment. It takes around 13 years to break even if you delay retirement from 62 to 65 or the equivalent, NOT counting interest income. Few live long enough to break even if you count the interest you can earn on your first three years of early retirement, not to mention the interest on a lifetime of Social Security investments. This changed little with gradually increasing age requirements, so Social Security’s New Math: Who Loses? Everyone Loses!

S-corporations let you pay yourself a big salary even if you do not make much. The extra salary costs you nothing in income tax, since the S corp loss offsets the salary. That sometime makes me calculate the break even on a high salary, with high social security tax, versus increased social security benefits. NEVER in my long career did a client feel the extra tax was worth the extra benefits. This shows you that Social Security is only a good deal if an unrelated employer pays half its cost. Of course, you may not realize that employers factor in this extra cost and pay you less. In short, Social Security’s New Math: Who Loses? Everyone Loses!

The worst part about Social Security has long been that benefits are grossly excessive compared to costs. The the official 2009 Annual Reports of the Social Security and Medicare Boards of Trustees makes this very clear. We may now take a very small (inadequate) first step towards bringing benefits in line. We are only doing so because the Social Security Trust Fund already pays out more than it takes in and may otherwise soon be broke. This involves skipping an annual cost of living increases for social security beneficiaries, so Social Security’s New Math: Who Loses? Everyone Loses!

Barring action by Congress, 2010 will be the first year in 35 years that seniors don’t get a cost-of-living adjustment. Benefits won’t shrink, but it will be a cut because of rising medical costs and overall inflation, not to mention the severe recession that cost most of us lots of money. This makes minimizing Social Security and Medicare, while paying minimum amounts for coverage, a big reaso n for S corps. This confirms Social Security’s New Math: Who Loses? Everyone Loses!

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