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How Immigration Can Save Your Retirement & The Perverse Tax System

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If You Want to Save Social Security, You Probably Should Favor Amnesty for Illegal Immigrants

Now, before we get into this section, I am not going to get into the political or moral debates about immigration and abortion. Instead, I’m going to point out some economic data that has real implication for your financial future and you can draw your own conclusion (hey – as the Investing for Beginners guide, my job is to provide you with information that could make your life better, not make ethical decrees or enter the fray of this American political machine so you’ll forgive me if I politely dodge these issues and focus on your pocketbook instead.)

The sexual revolution of the 1960’s had an enormous impact on your net worth in terms of whether or not you will be able to collection social security benefits from the United States government. From general estimates, we know that 1 out of every 3 members of the current generation of young people was aborted and we have no way to estimate the number of individuals that weren’t born as a result of the introduction of widespread contraceptive use. Economically, we know that the result was a skewed aging system where the number of retirees for every productive worker is going to skyrocket. That means there won’t be enough money left to fund the current social security obligations. To solve this problem, there are a few options on the table:

  1. Cut benefits
  2. Raise the age of eligibility for benefits
  3. Raise taxes on working-age citizens
  4. Increase the proportion of working-age citizens to retirees

First, no one wants benefits cut. Second, although Roosevelt designed the system to outlive most of the people who hoped to claim benefits, the average retiree probably doesn’t want to put off those checks until they reach their seventies. Third, raising taxes on working-age citizens isn’t likely to succeed. Frankly, if an attempt is made to pass this burden onto younger generations, they will be the one occupying the White House and Congress and, if the situation were to grow dire enough, could very well just axe the whole system. That would be devastating for older individuals who had not planned for their own retirement through building a complete portfolio.

That leads us to item number four. How can we increase the proportion of working-age citizens to retirees? Well, three ways:

  1. Decrease contraceptive use (which would be a disaster for HIV and other disease prevention, raising medical costs and negating the good we intend to cause; plus, it’s not likely to work.)
  2. Ban on-demand abortion. This probably won’t ever happen because the courts have had their say and consistently uphold Roe v. Wade. It’s simply too risky to bank the entire system on the outcome of a political debate that appears to be split evenly down the electorate.
  3. Somehow create a massive influx of able-bodied, working Americans that are, in an ideal world, already grown and employed. Unless we invent some sort of cloning mechanism, the quickest and easiest way to do this is to open the borders.

Now, remember, we aren’t interested in politics here. Our only objective is to look at this from a financial point of view and then you, as an individual and we, as a society, have to weigh the pros and cons and come to some sort of conclusion about where we stand on the issue. But the bottom line is, unless you are an American Indian, all of us came over on a boat and were, at one point, an emigrant. Personally, I wonder if Lou Dobbs ever took a history course; yes, the German, Polish, Irish, Jewish, and Chinese districts existed eighty years ago. But eventually, our modern, consolidated society emerged. As one pundit put it, if you are frightened of immigration, you are betting against the historical ability of the United States to serve as a melting pot of cultures and bring the best of the world to these amber waves of grain.

By raising the population by ten or twenty million people, and getting them into the social security system, it’s possible it could be saved. Should it be done? That’s for you to decide. All I’m saying is that, again, there are no free lunches. Something’s going to have to give and if you want to ensure a socialist retirement system, you’re going to have to bend on one of the other issues.

3. Realize That Our Taxation System is Perverse. You Make More After-Tax Dollars By Sitting on Your Butt Than Working.

Imagine two men - Thomas and Billy – each earn $100,000. Thomas made his income from dividends on his portfolio of common stocks. Billy owns a business outright as an entrepreneur. At the Federal level, Thomas is going to get to keep $85,000 of his income despite sitting by the pool all year. Billy, however, is going to be lucky to end up with $65,000. That’s because he’s responsible for 15.3% in payroll taxes (since he’s self-employed, he has to make the employer’s contribution, as well as his own) plus pay income taxes. Billy’s a hard worker … he spent sixty hours per week building his company, and yet, fewer of his dollars end up in his pocket at the end of the year.

How can this be solved? Talk to a well qualified and regarded accountant and tax expert! By using a Traditional IRA, a SEP-IRA, and some other tax-advantaged accounts, Billy could actually shield a big chunk of his income from taxes and ensure those funds are able to grow tax-free for a long, long time. Think about decades of dividends, interest, and capital gains compounding without Uncle Sam getting a bite of the pie. If you are in this situation, spending a couple thousand dollars to work with someone who can build this foundation for your balance sheet is well worth it.

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