743 Stirring The Social Security Pot

There is a group who already has its collective mind made up and set in concrete--the Bush-haters are not going to like or support any plan for revamping the failing Social Security system that comes during a Bush administration. Another group won't pay attention or care. Then there's the lump in the middle--the rest of us who are looking at and sifting the information and weighing the options. I see a lot of discussion among Conservatives, who are known for not blindly following their President or party. The Wall Street Journal columnists, for instance, have been very cautious and have suggested the down side of personal accounts.

Two problems appear that worry everyone: what happens to those programs that now dip into the pot of money we regularly give the government which have nothing to do with retirement; what happens if you retire with a combination account and that part of your life span is in a stock market down swing?

We already have President Bush's retirement plan at our house (at least as I understand it): we have a mix of Social Security, private 401k, SEP IRA, a teacher's annuity (403b)*, a teacher's pension and miscellaneous IRA accounts and savings our executor will have to figure out someday. Because a teacher's pension is considered a government plan, I am not eligible for Social Security--not mine and not the wife's portion of my husband's. This is called a government offset, and as I have poked around in the articles about Social Security, anything you might receive from SS in the new plan will be "offset" by your private defined contribution. There is little advantage here for the retiree, unless you are allowed to pass it along to your heirs, or the offset stops at a point and you can enjoy the nest egg you kept warm. As it is, many retiree households are already dependent on defined contribution plans for pension coverage--maybe half, according to a December WSJ article.

There are way too many details not worked out (that would be done by Congress and the people who cut down trees) to make firm opinions about this plan. But I do worry about the half a sentence that slips through unnoticed in the law which will be used to launch ships or save owls or infringe on freedoms by bevies of lawyers and future legislators. Sometimes the devil you know is better than the demons you don't know.

Die young and get nothing under current plan

What would a “small” increase (to save the system) in current payroll taxes cost the average worker?

How would PRAs really work?

*401(k) plans are retirement plans that some private corporations offer their employees. A 403(b) plan is similar to a 401(k) but it is offered to employees of some non profit organizations. In both of these plans the individual chooses to deduct part of their paycheck and place it into an investment portfolio they formulate. These plans allow individuals to select among different types of investments, depending on how much risk they are willing to assume. The contribution into the account reduces the individual's taxable income. Employers may choose to match a portion of the employee's contribution up to 50 percent. These investments grow tax free until the money is withdrawn during retirement.

If you are employed or self-employed you may open an individual retirement account (IRA) and contribute up to $3,000 a year (or your earned income, if less). Married couples can contribute up to a total of $4,000, even if one spouse is not employed outside the home. Depending on your individual circumstances, you may be able to deduct part or all of your IRA contributions on your federal income-tax return. All investment earnings in your IRA compound on a tax-deferred basis. You pay tax on your earnings and contributions that were deductible when you actually withdraw the money from your account. If you withdrawal money from your traditional IRA before age 59 1/2 it may be subject to a 10% early withdrawal penalty and income tax. FinanceListings definitions