Don't Forget We Still Have to Bail-Out Social Security
There have been a lot of bail-outs lately. In fact, in just a few months we’ve gone from a hands off policy for business (as respects to the government) to a government that is now invested heavily in insurance, banking, mortgage, and investment capital.
And, the bail outs have just begun. I’ve followed the coming crisis for Social Security for years now. The numbers just don’t work. Baby Boomers are retiring. Until now, we’ve had many people paying into the system to support the few (from the generations before) in their golden years. In fact, you’d think that there was a huge surplus just sitting there waiting for the Boomers when they retire. After all, there have been so many more per capita paying in.
But the money’s not there. In fact, there is a deficit. Now, the Boomers are retiring and it’s up to the younger generations to support them. But there are less in Gen X then Boomers, so the numbers have radically swung the other way. (Luckily Gen Y is coming behind them and there are almost as many Gen Y as there are Gen X. Still, how many of them want to inherit the transgressions of their parents and grandparents?)
Something has to be done and the time is getting critical. President-elect Obama has called for a removal of the cap on Social Security wages. That means that the tax rate will soon be almost 60%. That’s right - we’ve gone from 35% to 60%!
It’s never been more important than now to prepare for what is going to happen. Keep your business structures and your tax strategies flexible. There will likely be changes coming.
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Diane, do you have any additional status on the Democratic proposals to nationalize 401k plans and do away with the retirement accounts? Is there a bill number that we can follow?
Am I being paranoid about a serious Social Security deficit, an administration that claims it is fair to spread the wealth and this big pot of savings created by those who worked hard and spend less than they earn (even though the pot has taken some hits lately)?
Penny, I don’t think you’re being paranoid at all. I’m very watchful right now.
At this moment, there is no bill. I’ll keep you posted on it, though. I think the focus is on getting a new Economic Stimulus package passed and then getting Obama in office.
Then we need to be super-vigilant on what is going on, not just at a federal level but our local state level as well.
I watched Neil Cavuto’s show a little bit today. A bit part of the discussion was on this very topic.
There is no bill, but there is apparently growing interesting in this plan. The talk is that there would no longer be deductibility for 401(k) plans, but employees could still use them. They could also direct their employers to contribute to a government savings plan that has a guaranteed rate of return of 3%. The government would invest the money and be in complete control of it.
My guess is that means the end of any self-direction for deductible funds. I wonder if that means that we’ll all be able to create, in essence, a Roth plan.
“The government would invest the money and be in complete control of it.” It’s past Halloween and that is really scary. What kind of retirement will a 3% return provide?
I, too, wonder what will happen with the Roth plans. I fear that at some point, the amount of tax-free gains that will accumulate over time will be too tempting for any administration, particularly those with more left leanings. And I have been hoping to use Roth accounts as an integral part of a plan to set up my kids’ retirements. I’ll need to go back to the drawing board for contingency plans.
More importantly, consider that eliminating the 401k deduction now increases the taxable income pool. The employee AND employer contributions are now available targets. The Feds and states are looking for new revenue sources. And this doesn’t involve increasing taxes.
But discouraging additional retirement savings will have a disastrous effect on our future.
What problem have they really solved?
Penny, his statements seem to be all over the place.
On one hand, there is talk of eliminating the 401(k) deductibility and requiring payment into a government run program.
Then this was reported at CNN
If you click through, you’ll see where is calling for ALL employers to offer IRAs or 401(k)s.
I guess that is in addition to the mandatory health care that employers are supposed to offer as well.
I think these are great things to want to provide, but the bottomline is that most companies can NOT afford that! The premiums for my son and I (my husband has a separate plan) are almost $900 per month. I suspect others have similarly high premiums. This is a benefit that most employees don’t even realize.
I think we’ll see more companies finding every way they can to reduce hours so they do not have to comply, cycle people through jobs (already becoming common - you can work for 6 months only and then you’re laid off for a period of months), find ways to NOT have employees or outsource as independent contractors. None of this is good for the country, or for the people who need to have jobs.
Interesting link. I found the part on the minimum wage to be particularly interesting. It could go from $7.25 in 2009 to $9.50 in 2011.
The criteria for health care and retirement contributions by employers will also be interesting. Depending on what work effort is deemed eligible, e.g. part time versus full time, it will have a huge effect on the employment of college students, teenagers and others who work part time in addition to the minimum wage hike.
Making it more expensive to hire people has the opposite effect on jobs creation. That isn’t rocket science.
Hmmm. Apparently, it is of little value for teenagers to learn how to manage their money in a part time opportunity that allows businesses to offer lower prices to their customers.
Usually major corporations are kicking in 3-4 times the cost that the employees pay for health care premiums. And you’re right. Most people are quite clueless that those evil, greedy companies are doing this.