Finance Retirement

Crystal Balling

Every now and then I get out the old Crystal Ball and try to take a look down the road to see if there are any speed bumps coming up for seniors. Occasionally I run across a real surprise like finding out that we are no longer getting Social Security payments.

Somewhere along the way, our monthly Social Security check has been renamed a “Federal Benefit Payment.”

I suppose that is all right, but I always preferred Social Security because that is the account I paid into for my retirement for most of my working life. I guess I made the mistake of assuming that I was buying into some sort of retirement annuity when what I was actually doing is funding a federal benefit program.

Elephants in the Room Cartoon
While the amount we may be getting each month in Federal Benefit Payments may be determined on how much we paid into the program over the years that’s not necessarily so for all people receiving these federal benefits and therein lies the rub.

I ran across these figures that give us some idea of how Social Security was supposed to work. Keep in mind not only did you contribute to Social Security but your employer did too in your name. The combined contribution amounted to 15 percent of your total income each year.

If you averaged $30,000 a year in income over your working life the contributions in your name would total $220,500. If you calculate the future value of $4,500 per year – yours and your employer’s contribution – at a simple 5 percent, less than what the government pays on the money it borrows, after 49 years of working you would have $892,919.98.

Pensions Retirement CartoonIf you took out only 3 percent per year, you would receive $26,787.60 per year and it would last better than 30 years – until you’re 95 if you retire at age 65 – and that’s with no interest paid on the final amount on deposit.

If you bought an annuity and it paid 4 percent per year, you would have a lifetime income of $2,976.40 per month.

Let’s face it, not many of us receive anything like that amount in our monthly Federal Benefit Payments. One reason for that is that not everyone receiving Federal Benefit Payments today actually paid into the account.

For most of us our Federal Benefit Payment now gets deposited directly into our bank account each month and that is not likely to change. However, for those creeping up on retirement age and expecting to sign up for Federal Benefit Payments, there is a bold new world out there.

Smart CardThe U.S. Department of the Treasury is retiring paper checks for Federal Benefit Payments and going all electronic by March 1, 2013, a move that has seen more than 90 percent of current Federal Benefit Payment recipients switch to the direct deposit method.

A year from now if you aren’t using direct deposit of your Federal Benefit Payment, you will be issued a Direct Express Debit MasterCard by the U.S. Treasury and each month whatever you have coming will be posted to the card that you can use to transact your everyday business until you have used up your Federal Benefit Payment credit for the period.

SNAP LogoThese Direct Express Debit MasterCard’s will eventually be coordinated with the more common Electronic Benefit Transfer (EBT) cards now issued by states to transfer public assistance funds to recipients and SNAP (Supplemental Nutrition Assistance Program) funds that have replaced the old Food Stamp Program of the U.S. Department of Agriculture.

All you will need to survive in the future will be a couple of plastic cards, your own personal credit/debit cards covered by your own private funds notwithstanding.

Looking deep into the Crystal Ball I see these programs eventually melding into one handled by a couple of the nation’s banks that are “too big to fail” insuring recipients that their benefits will never run out, that there will always be a bail-out waiting in the wings should the strain on the federal and state benefit programs get a little tight.

Politicians Promises Septic TruckThe denominations used in these transactions will eventually become “units” and the “dollar” designation, like our old familiar “Social Security” designation, will fade into history along with a lot of the outstanding debts and overdrawn accounts in the systems today. The “units” will be used to generate sales and other use taxes that in turn will be used to reduce outstanding government “dollar” indebtedness and eventually the slate will be wiped clean.

It won’t matter to the individual recipient of Federal, or State, Benefit Payments whether you call the denomination a unit or a dollar, it will still buy what it was intended to buy. The buyer will get food, the seller will get paid for distributing the item and the grower will get a percentage for his work that can be used to offset the cost of planting the next crop and the governments will collect some taxes at each transaction point.

Country Broke CartoonMoney as such won’t be that important in everyday lives and life will go on. The evolving benefits payment system will become a secondary monetary system on which many of the internal affairs of this country will depend.

Already half of this country receives some type of federal or state benefit payments and pays no taxes with the exception of the sales and use taxes collected on the transactions in which they are involved.

It’s all a great wash, according to the Crystal Ball.

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