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Social Security and Medicare

Posted by Myles Brandt on 13 May 2009 | 0 Comments

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You may have heard in the news recently that the unemployment caused by the recession is draining the funds of both Social Security and Medicare. Less people employed means less withholding being paid into the funds. The fact that these government programs may become insolvent highlights the need for retirement planning at every age in life. The New York Times has a good article detailing the troubles of Social Security and Medicare: http://www.nytimes.com/2009/05/13/us/politics/13health.html?_r=1&scp=2&sq=Social%20Security&st=cse 

A Brief History

 

Social Security was established in 1935 to “give some measure of protection to the average citizen and to his family against the loss of a job and against a poverty-ridden old age.” FDR August 14, 1935.

 

It started as a 2% tax on wages up to $3,000 and now is 15.3% up to 102,000 (Granted medical benefits and other things have been added to it). Social Security is invested in special treasury bonds that pay 5% or so, a cost the taxpayer pays anyway. This makes the real cost of Social Security higher.

 

Originally life expectancy was 61 and benefits didn't start until 65. Now life expectancy is 76 years and benefits still start at 65 or so, give or take depending on when you were born.

 

Now, two-thirds of US seniors rely on Social security for more than 1/2 of their income and 40% say it comprises more than 80% of their income.

 

The trustees of Social Security say that the fund will become insolvent by 2037, three years earlier than expected. Merely pushing back the normal retirement age to 70 would more than make up the shortfall.


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