Personal Finance Q & A: Year-long Social Security tax provides little benefit

QRegarding the need to save Social Security: How much would it help if taxpayers paid Social Security taxes all year instead of stopping at their yearly limit?

- B. Kral, Green Bay, Wis.

APaying taxes all year won't offset the shortfalls in collections expected to occur within the next 20 years, experts say.

Currently, the Social Security tax is 7.65 percent of a person's wages up to a total of $68,400. Most folks earn far less, so they pay all year anyway. Next year the taxable wage limit jumps to $72,600. The increase, however, only affects some 8 million people.

Moreover, if you apply the Social Security tax to all wages, you still wouldn't generate enough revenues to offset future shortfalls because the super rich tend to be sheltering their income from income taxes. The money they make from investments, for example, avoids the pinch of Social Security taxes.

Besides, eliminating the wage limit would likely meet enormous flak in Congress.

That's why lawmakers are considering such steps as hiking the retirement age, lowering benefit levels, or investing some revenues in the stock market.

Q I have five CDs and money-market accounts totalling $92,000 in savings and loans. I also own stock in the original eight Baby Bells, AT&T, and one other company, which, in all, pay quarterly dividends of about $463. My Social Security is $742 per month. My home is debt-free. I am 85 years old. What can I do with my money that would earn good interest, be safe, and always available?

- I.C., Temple City, Calif.

A"Consider a living-trust account with a discount brokerage, such as Charles Schwab [800-435-4000], Fidelity Investments [800-544-8666], or Vanguard Group, [800-662-7447]," says Mike Huffman, a portfolio manager with Fraser Management Associates in Burlington, Vt.

He would put the money from all five CDs and the money-market accounts into a money-market fund within the trust. Your stocks could be sold and put into the money fund or stay separate but transferred into the brokerage account.

The money-market fund would pay a higher yield than the CDs and money-market accounts. Selling the stocks would give you more safety and a higher yield.

You would also receive one consolidated monthly statement, plus check-writing privileges. The account would not be federally insured, but mutual-fund money-market accounts are considered financially sound.

Questions about finances? Write:

Guy Halverson

The Christian Science Monitor

500 Fifth Ave., Suite 1845

New York, NY 10110

E-mail: halversong@csps.com