What Are We Celebrating?

09/05/2011 9:30 am EST

Focus: MARKETS

Terry Savage

Author, The Savage Truth on Money

It's Labor Day, and not enough people are laboring. Instead of celebrating a day off from work, we're worrying about where all the jobs have gone. So instead of writing something profound, this Labor Day column will give you some random -and some trivial-thoughts about work and money, writes MoneyShow.com personal finance expert Terry Savage.

National Payroll Week
It seemed more than ironic to receive a press release extolling the fact that National Payroll Week is September 5 through 9 this year. But the report was chock full of facts you might find interesting to discuss, instead of the fact that the economy is creating zero jobs these days. Here's what those who do have jobs are doing with their money:

  • 75% of employees use Direct Deposit for their paychecks.
  • Only 17% of those who use direct deposit split their payment into two accounts. That's easily done -and can be a terrific way to save. (Savage Truth: If you don't see it, you won't spend it!)
  • While 71% use direct deposit because of the convenience, 21% say they do it because it makes a positive environmental impact.

Just thought you'd like to know.

FICA Contributions
Here's a quick quiz. You recognize the initials FICA because they appear on a little box on your paycheck. That box has a substantial sum in it-a deduction from your paycheck that goes to Social Security. But what do those initials stand for? The answer is at the bottom of this column.

While you're thinking about that, here are some statistics-roughly checked by my actuary-that come from an e-mail circulating on the Internet. The originator of the commentary remains untraceable-but is obviously upset that the budget discussions have included Social Security as an "entitlement" program deserving of cuts.

The math is pretty rough, but acceptable to make the point. The writer reminds us that your FICA deduction is only half of the story, since the employer sets aside a like amount. Thus, the combined "contribution" is roughly 15%, including the Medicare Hospital tax-and despite the reduction in FICA for 2011 from 6.2% to 4.2% for both employee and employer.

Also note, the current rates have been in effect since only 1974. Still, the story is an interesting one-and here it is directly:

If you earned only $30,000 per year over your working life (as I did), and paid in 15% each year, that's close to $220,500. If you calculate the future value of $4,500 per year (yours and your employer's contribution) at a simple 5%-after 49 years of working, you'd have $892,919.98.

If you took out only 3% per year, you'd receive $26,787.60 per year and it would last better than 30 years -until you're 95 if you retire at age 65. [The actuary noted he didn't use a declining balance for withdrawals, nor any interest crediting on the balance during the withdrawal period.]

If you bought an annuity and it paid 4% per year, you'd have a lifetime income of $2,976.40 per month. The folks in Washington have pulled off a bigger Ponzi scheme than Bernie Madoff ever had!

Entitlement my ****! I paid cash for my Social Security insurance!!!! Just because they borrowed the money doesn't make my benefits some kind of charity or handout!! Congressional benefits-aka free health care, outrageous retirement packages, 67 paid holidays, three weeks paid vacation, unlimited paid sick days-now that's welfare. And they have the nerve to call my Social Security retirement an "entitlement"?

Thank you, dear reader. You said it all very well, and I am happy to "forward" your message to many more people.

And now a final thought for this Labor Day season. The headlines are gloomy. No jobs are being created. There are cries for government to "do something."

But is it possible for government to "create jobs"? Recent history should make us skeptical. Yes, the New Deal in the 1930s created roads and bridges and dams, many of which are still in use today.

But today our government is buried in debt-significantly through failed "shovel-ready" programs that cost money, but provided no results. The combination of a huge government bureaucracy and our massive deficit demands we try something more creative this time around.

Maybe it's time to give the real economy a chance to grow. Then Labor Day would once again be a reward for those who are working, instead of a reminder of our failed policies. And that's The Savage Truth.

Related Articles on MARKETS