Why I Don't Mind Contributing to Social Security

There's been a lot of concern lately -- often paired with a lot of complaining -- about the social security situation. But is the situation really as bad as all that?

I mean, people are getting their monthly checks, there is still plenty of money in the social security fund coffers (albeit it's been lent away for other government purposes, but the big IOU is still there), and there is no immediate concern of payments being cut anytime soon. So why is everyone so up in arms?

Personally, I don't mind paying into social security. In fact, I probably have more faith in social security providing me a secure retirement than the stock market ever could. That being said, maybe paying social security isn't as bad as many think.

It's a No-brainer

Unlike most retirement plans in which you have to make a conscious effort to contribute or at least sign up for, you've got no choice in when it comes to social security. While this forced contribution might seem a detractor to some, it's probably a good thing, because otherwise people would opt out, then complain about not having saved enough for retirement.

There are many people out there who, given the opportunity, would spend every penny they make, including the money that should go into social security. Therefore, the government doesn't give us the choice with social security, sticking it away for us where we don't have to do a thing with it until it's time to collect those helpful, and in many cases necessary monthly retirement benefit checks.

Secure Returns

With the Social Security Administration estimating annual cost of living adjustments (COLA) averaging just over 2% for the next 10 years, and 2.8% after that, your retirement money is at least (hopefully) keeping pace with the average annual inflation rate, which is better than can be said for most savings accounts and certificates of deposit.

And with payments guaranteed by the government, the chances that you won't see this money back don't appear to be any worse as when compared to non-guaranteed investments like stocks or mutual funds. But people see that warning on their annual social security statement (before they did away with them) that read something along the lines of, "The projected point at which the combined trust funds will be exhausted comes in 2036 '" one year earlier than the estimate in last year's report. At that time, there will be sufficient tax revenue coming in to pay about 77 percent of benefits," and they get all bent out of shape and start worrying that they won't see a dime of their money back.

Unfortunately, I think that many people focus more upon the "trust funds will be exhausted" portion of that statement than the rest of what its saying. But let's take a look at what this statement from the Social Security Administration's own website really means?

Instability -- Really?

Based upon the above statement, at this point in time, the youngest part-time workers out there at age 15 or so wouldn't have their retirement benefits affected until they started turning 40 -- 25 years from now. Those who are 35 years old now would begin to see reduced (77% of estimated benefits) not eliminated benefits at age 60, and those at retirement age now, say age 65, wouldn't have to worry about being short-changed until they are turning 90 -- if they are so lucky.

These timeframes just indicate when payments would begin to be reduced, but people would still be getting payments. And that's without any changes to the social security system over the next several decades.

How likely is it though, that the federal government won't make one single change to the system that comprises the vast majority of many of their senior citizen's retirement income, bearing in mind that politicians often cater heavily to their senior demographic? What politician with any hope of re-election is going to say, "Yep, let's just let those social security benefits run out and hope the old folks figure something out," and move on to other topics?

I'm not saying that the issue of tackling and reforming our current social security system isn't important and an issue better handled sooner than later. However, it is one that we may be over-reacting to just a bit in our fear of its demise and in our anger toward having to pay into a system from which we feel "we will never get our fair share."

Sources:

Social Security Administration. Estimates Under the 2011 Trustees Report. http://www.ssa.gov/OACT/TR/TRassum.html June 4, 2011.

Social Security Administration. FAQ. http://ssa-custhelp.ssa.gov/app/answers/detail/a_id/210/kw/social%20security%20trust%20fund

June 4, 2011.

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Disclaimer:

The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. For financial advice, readers should consult a licensed financial advisor. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.