Posted by:
saviorself
(
)
Date: November 01, 2011 01:05PM
There are several possible sources of income for people who are retired (generally over age 64). The best possible scenario is for you to be independently wealthy from either accumulated savings or inheritance. Another income source is a pension where a former employer gives you a monthly pension check. In days gone by it was fairly common for large companies to provide pension plans for their employees, which were fully funded by the employer. Such plans have largely been replaced by 401-K savings plans where the employee makes a significant monthly contribution and the employer matches it up to a limited percentage.
The old-age income standby is Social Security (SS). During your working life time, each pay period you must pay FICA (Social Security) taxes. The FICA taxes are imposed on all workers and self-employed persons. Employers are required to report wages for covered employment to Social Security for processing Forms W-2 and W-3. Internal Revenue Code provisions section 3101 imposes payroll taxes on individuals and imposes employer matching taxes. Section 3102 mandates that employers deduct these payroll taxes from workers' wages before they are paid. Generally, the payroll tax is imposed on everyone in employment earning "wages" as defined in 3121 of the Internal Revenue Code and also taxes net earnings from self-employment.
Social Security taxes are paid into the Social Security Trust Fund maintained by the U.S. Treasury (technically, the "Federal Old-Age and Survivors Insurance Trust Fund", as established by 42 U.S.C. § 401(a)). Current year expenses are paid from current Social Security tax revenues. When revenues exceed expenditures, as they have in most years, the excess is invested in special series, non-marketable U.S. Government bonds, and thus the Social Security Trust Fund indirectly finances the federal government's general purpose deficit spending. In 2007, the cumulative excess of Social Security taxes and interest received over benefits paid out stood at $2.2 trillion. The Trust Fund is regarded by some as an accounting trick which holds no economic significance. Others argue that it has specific legal significance because the Treasury securities it holds are backed by the "full faith and credit" of the U.S. government, which has an obligation to repay its debt.
The Social Security Administration's authority to make benefit payments as granted by Congress extends only to its current revenues and existing Trust Fund balance, i.e., redemption of its holdings of Treasury securities. Therefore, Social Security's ability to make full payments once annual benefits exceed revenues depends in part on the federal government's ability to make good on the bonds that it has issued to the Social Security trust funds. As with any other federal obligation, the federal government's ability to repay Social Security is based on the power to tax and the commitment of the Congress to meet its obligations.
In 2009 the Office of the Chief Actuary of the Social Security Administration calculated an unfunded obligation of $15.1 trillion for the Social Security program. The unfunded obligation is the difference between the present value of the cost of Social Security and the present value of the assets in the Trust Fund and the future scheduled tax income of the program. In the Actuarial Note explaining the calculation, the Office of the Chief Actuary wrote that "The term obligation is used in lieu of the term liability, because liability generally indicates a contractual obligation (as in the case of private pensions and insurance) that cannot be altered by the plan sponsor without the agreement of the plan participants."
To summarize, every pay period the employee pays FICA (Social Security) tax. However the money you pay is NOT held in a nice little nest-egg for your future use. It either is paid out to people who are currently receiving SS benefits or it goes into the General Fund of the United States Government (when the SS funds are used to purchase US Treasury Bonds). Some people jokingly call Social Security the world's biggest Ponzi scheme. The bad news is that if, sometime in the future, the United States government cannot pay its debts then Social Security recipients will not receive their monthly benefit check.
When you retire it is definitely nice to get a monthly Social Security check (as I am now doing). However if you are accustomed to a middle class lifestyle, your SS check will not sustain that lifestyle. If you do not have your own personal savings then you will be living under the poverty line.
To a young person retirement age seems a long way off. But it has a way of sneaking up on you. If you want to live your old age in something other than poverty, then it is extremely important to save money over your entire working life time.
This now brings me to the crux of this post. Are you currently paying tithing to the LDS (or any) church? If the answer is yes and if you are NOT paying money into an IRA (Individual Retirement Account), then you are making a major mistake.
Once you pay tithing, the money is forever gone, and you cannot get it back. Don't expect the Mormon Church to rescue you from old-age poverty. That is not going to happen. If you cannot financially take care of yourself in your old age, don't expect any other group to do that. It is up to you to pay into your personal IRA during your working years. Then with SS benefits and your IRA as additional income, you should be able to enjoy your retirement years.