Social security works by taxing your earnings.
The amount taxed is 12.4 percent which, if you are self-employed,
you must pay in full. If you work for someone else, you are
required to contribute half while your employer contributes
the other half. The money taken out of your paycheck is then
put into the Social Security trust fund account, which pays
for the benefits of current retirees.
Currently Social Security has two problems: Retirees are living
longer and the baby boomer generation is getting ready to retire.
There are more people retiring than are working and paying into
the system, so potentially the boomer generation could deplete
all the funds already in the account and leave nothing for the
coming generations. This means there will be no money left to
pay for our retirement benefits.
Bush has not made any final decisions about how to reform Social
Security, nor has he offered any specific plans, but he has made
suggestions. His most controversial proposal is to give younger
workers an option to create personal retirement accounts using
a portion (up to 4 percent) of their social security tax. You
could choose the accounts, but you would need to be setup for
this purpose, and there is some questions about who would pay
for setting up and managing them.
Also related to that change is a reduction in benefits paid
out to retirees. President Bush has stated many times that
changes made will not affect seniors retiring now or nearing
retirement. Instead these reforms are directed at those of us
who may not even have started thinking of our own retirement.
Bush’s current State of the Union speech didn’t add
anything new to the discussion.