Wednesday, January 02, 2013

Two Years of Personally Privatizing Social Security

The Social Security payroll tax holiday is no more. If you had not heard (I've met people in recent months who had no idea about this thing, all the way down to the end of its second year), you have been paying  having 2% less of your hard-earned pay stolen from you before you ever receive it, thanks to a temporary reduction in Social Security withholding theft. 

I'd love to see the looks on the faces of the unaware when they get their first 2013 paycheck in a few weeks, especially minimum wage employees here in Washington state: your .15 cent per-hour increase, a 1.66% hike, will now collide with the 2% hike in SS theft, which will bring your newly increased wage down to .06 cents less per hour than it was last year after deducting SS theft. 

Winning!

Anyway, for a lot of people, whether they knew the source of the little bit of extra heft in their take home pay during the last two years or not, those additional funds made day-to-day living a little more comfortable. The money was suddenly there, they started spending it, and they got used to having it.

Not me.

Before the holiday commenced in January 2011, when it was announced in the waning months of 2010, I immediately saw it as an opportunity to do something that D.C. will never get done: privatize Social Security.

I set up a Roth IRA with a favorite brokerage, then began placing the difference between the lowered 4.2% withholding theft rate and the standard 6.2% into the account. From paycheck to paycheck, and later on when I went into business for myself, from one income statement to the next, I socked away every penny of those funds. I never spent a bit of it on my life in the here and now (sorry, demand-siders! ...not really). It was my intention to continue doing this until the holiday ended, which after a one-year extension, it now has.

I didn't want to become accustomed to having those funds in my discretionary budget because I knew they were temporary in nature. I knew that eventually the governmugger would get tired of seeing us actually keeping what we earn and come back to take it away again. Buying a bigger lifestyle with something advertised as temporary is a recipe for disappointment and frustration later. I figured, hey, I'm already used to Uncle Scam just stealing this money from me, so I won't miss it at all if I lock it away for the next three or four decades. 

The direct end result is that I have a small retirement account that now compliments my other investments. I won't say how much ultimately ended up going into this account, just that it's four figures. That right there is probably all of the "evidence" fans of that idiotic, bankrupt, demographic time bomb called Social Security will feel they need to discredit the idea of establishing private accounts, that no one could save enough to retire with, but here's some key differences that go beyond numbers:

I can look into my account and see what's there, you can't do that with Social Security because it has no equivalent.

I can alter how my money is invested in my IRA to get better returns; Social Security has you bound, gagged, and blindfolded in the back seat of a car speeding toward a brick wall of insolvency.

Politicians can't raid my IRA to pay for their pet projects, but they've already done that to Social Security.

My IRA can aid in providing my retirement income without taking money from your paycheck; Social Security can only be fueled by further theft from others.

I can withdraw my principal from my IRA to fund things I might feel like doing before I reach retirement age; that money taken from you for Social Security is just gone.

I won't be taxed on distributions I receive from my Roth IRA, but you will be taxed on distributions you (might) receive from Social Security.

I can pass my IRA on to any heirs that I designate; any payment you might get from Social Security can only be given to heirs the government approves of after you die, and only for as long as they care to give it.

As to the numbers though, I did this with about one-third of what's normally taken from me. If I had the full 6.2% to put away instead, obviously my account would be growing a lot faster and would ultimately deliver greater value (because it's pretty easy to beat an average annual rate of return of 1.23%; my investment mix already has an annual dividend rate just shy of 5%, and it's set to reinvest). I would have two-thirds more capital going into something I am in control of, rather than a pyramid scheme that already promises to pay out just .75 cents on each dollar fed into it in a few decades. It's really silly to argue against doing something like what I've done when your counterexample is a scheme that is already failing.

How about a compromise: I can go my way and opt out of this scheme, so could anyone else who wants out, and those who want to keep shuffling deck chairs around on the Titanic can go ahead and do so. Sound fair?



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