After two weeks of writing why people don’t save, I’ll let the readers have their say.
“I would like to give you a good reason,” said S.L. Davis, a retiree from Hanover Park, Ill. “We are penalized for it.”
It’s our government, Davis says, that penalizes us, levying higher taxes on the Social Security benefits of people who have saved all their lives and now enjoy a higher income from the interest or dividends on their savings.
In general, Social Security benefits are not taxed unless annual income exceeds $25,000 for a single individual and $32,000 for a married couple.
Beginning in 1994, however, Americans have been taxed on up to 50 percent of their benefits when their modified adjusted gross income, which includes interest and dividends from savings, is between $25,000 and $34,000 for single taxpayers, and $32,000 and $44,000 for couples filing jointly.
In addition, Americans are taxed on up to 85 percent of their benefits if they have income over $34,000 (single) or $44,000 (couples).
“I believe that most people, because of being penalized, will not save and hope the government will come up with something to bail them out,” Davis said.
A. Borgens, from San Clemente, Calif., sounds the complaint that people who have saved consistently may lose part or all of their Social Security benefits if the government adopts “means testing”-that is, reducing or denying benefits to people with the “means” to do without them, no matter how much they paid in Social Security taxes while they worked.
“My husband and I both worked and lived well, but beneath our means. We didn’t buy every `new toy’ on the market,” Borgens said. “Therefore we have a nice retirement nest egg. However, it was intended as a supplement to Social Security.
“Now, because our savings continue to grow, we will probably lose all or a portion of our Social Security if Uncle Sam decides to `means-test’ it. My point is, why save for retirement when if you save too much, the government will take it away?”
Another reason people don’t save is that they don’t understand the awesome power of compound interest, that is, interest that makes more interest. Listen to Larry J. Tracy, president of a money management firm in Sarasota, Fla.:
“I use a `doubling penny’ printout to make a point with young people. When asked if they wanted $1,000 a day for 35 days or a penny doubled every day for 35 days they always take the thousand dollars. When I show them how much they lost they can’t believe it.”
Here is how much: $1,000 a day for 35 days is $35,000, that’s easy to figure out. But did you know that a penny doubled every day becomes $41,943.04 on the 22nd day? And $1,342,177.28 on the 27th, and $343,597,383.60 after 35 days? Can you even fathom how much that is?
Managing money, Tracy said, is something that should be taught quite early.
“You should get your ideas in the grade schools,” he said. “If people develop good savings habits when they are young, their lifestyle will change and give them a freedom few people know. You can never be free when you owe someone else money.”
The money you owe, of course, includes what you borrow when you use a credit card. William J. Boyd, from Northfield, Ill., tells how and his wife learned how to master the plastic.
“Credit cards are a wonderful invention-and a terrible trap,” he said. As newlyweds, he and his wife learned the lesson “quickly and painfully” 33 years ago.
“We were paying our bills each month, but we had nothing left over for the month ahead-and the credit cycle began all over again,” he related. “That was the subject of a little spat, but then, fortunately, we came to two decisions.
“First, we cut up every card in our possession and said we would not charge again until we had our finances firmly in order. And two, we said that once we started to use credit again, we would go home and write the check for that charge immediately.”
That’s something I always do, too, because once you say “charge it,” the money is as good as gone. So I deduct it from the balance of the money market account I will eventually use to pay the credit card bill.
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Humberto Cruz welcomes questions and comments from readers. Although he cannot respond to each one individually, he will answer those of general interest in his column. Write to him in care of the Orlando Sentinel, P.O. Box 119, Orlando, Fla., 32802-0119.
