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Why You Pay Social Security Benefit Taxes

The cuts aren't just the result of the creeping taxation of benefits, said Nancy J. Altman, an assistant to Greenspan on the Social Security commission and author of an excellent book, "The Battle for Social Security: From FDR's Vision to Bush's Gamble." The 1983 act also raised the age of Social Security eligibility, which basically reduces across the board the amount of benefits retirees receive. As of 2000, if you were born in 1937 or earlier, your full retirement age for Social Security is 65. After that it increases to 66 for those born from 1943 to 1954, and rises again gradually to 67 for those born in 1960 and later. You can start taking benefits earlier than your full retirement age, but that reduces the monthly amount you receive.

The higher eligibility age results in reducing the percentage of wages replaced by Social Security benefits, Altman said. According to calculations she cites in a presentation to be delivered later this month, Social Security replaced 55.5 percent of the wages of a low-income worker in 2000 but will replace only 49 percent by 2030. The replacement rate for a medium-income worker drops to 36.3 percent from 41.2 percent, and for a high-income worker it drops to 24 percent from 27.3 percent. At the same time, Medicare premiums are taking a bigger bite out of Social Security payments.

Also, a substantial percentage of baby boomers got caught in the changeover in pension plans, leaving them with neither a traditional pension that pays out for life nor adequate retirement savings. Savings plans, such as 401(k)s, are only 25 years old, and many companies didn't offer them until years later. I often hear from workers who didn't have a savings plan available to them until they were in their 40s or 50s.

It's much easier (though not easy) to save enough if you start at age 25.

So let's drop the unproductive generational back-and-forth. We all have to do our part to keep Social Security sound.

And by the way, kids, those baby boomers are your parents, so you have a stake in protecting them in old age.

If not, they're moving in with you.

Martha M. Hamilton's e-mail address

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