Payroll Tax Holiday to end in 2013

I read that line about the “payroll tax holiday” last year  in my hometown newspaper. Holidays have to end, after all.

Why do people like to complain about Social Security and the payroll tax?  Some of them are free-market purists, Libertarians, lobbyists, and others who believe that everyone in America can succeed without any government support whatsoever. If you believe that all taxes are ‘confiscatory”, please read no further.

However, I haven’t met any people over 65 yet in the last 25 years who are not claiming their Social Security benefits. Well, there is that one family member who believes that people make rational decisions, all the time. But I digress.

The sub-headline could also have read:

Americans to resume full contributions to Social Security accounts in 2013.

Most of the people I speak to professionally are very appreciative of a lifetime annuity plan, with a cost of living increase, where they don’t have the worry of investment management. (Yes, Virginia, Social Security is that). For many older baby boomers, it will be the only plan like that they ever have. 

Social Security Poster: widow

Social Security Poster: widow (Photo credit: Wikipedia)

Here is how the Employee Benefits Research Institute (EBRI) puts it:

“The number of American workers with a defined benefit plan is quite small. According to the Social Security Administration, the percentage of employees  covered by a traditional defined benefit (DB) pension plan that pays a lifetime annuity, often based on years of service and final salary, has been steadily declining. From 1980 through 2008, the proportion of private wage and salary workers participating in DB pension plans fell from 38 percent to 20 percent.”

When I was a baby stockbroker, we talked to people about the three-legged stool; your company pension, Social Security, and your personal savings,; all contributing to your retirement income.   Many companies do not have pensions now [where the corporation bears the brunt of the investment risk and has to pay you a defined amount each month]. Social Security is not an investment scheme, but an old age insurance system, which has to pay out a fixed amount to its’ beneficiaries each month.  For many elderly (meaning over 65-not as old as it used to be!), Social Security benefits are a large part of their “golden years” income.

The Center for Retirement Research at Boston College published an analysis about the value of Social Security benefits as a lifetime annuity. Their conclusion was:

“Buying an annuity from Social Security is generally the best deal in town, especially in today’s low interest-rate environment.”

What are your thoughts on Social Security? I’m especially interested if you are a contributor and not yet a recipient. 

If you don’t think you will collect your FRA (Full Retirement Benefit), what are your alternatives? Please leave a note in the Comments.

Modern Social Security card.

Modern Social Security card. (Photo credit: Wikipedia)

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Filed under History, Lifetime Annuity Income

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