YOU ARE HERE: LAT HomeCollections

Your Money | MONEY TALK

Social Security Is a Safety Net for Poor, Not a Retirement Plan as Many Think


Q I am a 79-year-old semiretired consultant. I am questioning why I and many others have to pay a 15.3% self-employment tax in addition to regular income taxes. The self-employment tax, which pays for Social Security and Medicare benefits, will never affect my Social Security benefit, since my earnings as a consultant will not be high enough in any one year to surpass any of the five highest-income years on which my Social Security benefits are based. In other words, I am paying into an FICA Reserve Fund that will benefit only other participants and the U.S. government but never me or others in the same situation. Where is the logic and fairness in this situation?


A Perhaps you should try asking the millions of younger American workers who pay into the Social Security system wondering if they will see any benefit, let alone one that reflects their contributions. At least you're assured of getting a check--and Medicare coverage.

Your question reflects a fundamental misunderstanding of the Social Security system. It's not entirely your fault--the federal government has contributed to the illusion that Social Security is some kind of retirement plan by calling it a "trust fund" and referring to individual "accounts."

But the Social Security system has always been primarily a safety net, funded on a pay-as-you-go--or rather, pay-if-you-work basis.

Contributions routinely go to pay someone else's benefits. The money isn't stored up for you over the years in some mysterious bank vault or mutual fund.

Just as it's possible to get from Social Security far more than you put in--particularly if you worked when Social Security tax rates were low and have been retired for a long time--it's also possible to put in more than you get out. If the system runs out of money, as it is projected to do, many in younger generations today may learn that firsthand.

Already, today's younger workers face a longer wait for full retirement benefits because there probably aren't going to be enough workers contributing to the system in the future. The retirement age is rising, and for people born in 1960 or later it is 67, a full two years longer than you had to wait. But the delay in retirement ages--and the current surplus in the system--probably won't be enough to save Social Security. Most experts say benefits will have to be cut and taxes raised to make the books balance after 2030 or so.

So you can see why younger workers might not have much sympathy for your "plight."

It's not as if your Social Security check doesn't already reflect your contributions over the years. Your benefit is based on your 35 highest-earning years (not the highest five, as you stated).

But there is still a limit to how much you can get.

One reason your benefit is capped is that Social Security has many other, more important priorities than maximizing your check, such as keeping other elderly people out of poverty, caring for widows and orphaned children and making sure the disabled don't starve.

Nobody gets to opt out because they think the system is unfair or they might not get back every penny they put in. If that were true, most of us under 40 would be long gone by now--to the detriment of you and your peers, since without our contributions, the system might already be bankrupt.

Instead, we pay thousands of dollars every year and hope our politicians can fix the system enough so that it can at least survive as a safety net for the poorest elderly.

Will Is Voided Upon Remarriage

Q My question has to do with wills. I recently married for the second time; my wife has been married twice before and has three children from those marriages. She has some money but also considerable debts. We signed a prenuptial agreement to keep our finances separate, since I want the bulk of my estate to go to my children when I die. At the time, my lawyer suggested that I also update my will. My wife has been objecting to the expense and says the will I drew up with my first wife will work fine, since in that will, too, most of the money goes to my kids. Is she right?


A Let's hope--for your sake--your wife is not as crafty as she appears.

A marriage usually revokes a will automatically, unless the will specifically says it is not to be revoked by marriage. With no will, the laws of your state would determine who gets what. And because most states, including California, give a hefty portion of an estate to the surviving spouse, your wife may be much better off if you don't ever get around to updating your will.

Solutions for Mouse Trouble

Los Angeles Times Articles