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Leslie Bonacum
Neil Allen

Faced With Social Security Shortcomings, Workers Who Fail To Plan May Be Celebrating A Few More Labor Days Than They’d Like To, Says CCH

 (RIVERWOODS, ILL., August 28, 2001) – With several recent government reports indicating that the Social Security trust fund will be insolvent before many taxpayers reach retirement, workers may want to take this Labor Day to review their retirement savings plans so that they’re not forced to celebrate too many more of these holidays in the future, according to CCH INCORPORATED (CCH), a leading provider of tax, pension and business law information.

"It’s just beginning to hit home for many workers that the changing demographic of the American population is going to take a bite out of their Social Security benefits unless Congress increases the retirement age, and/or provides additional revenue by changing the way in which Social Security is funded," said Avram Sacks, an attorney and Social Security analyst for CCH.

"When Social Security was established in the 1930s, there were more than five workers for each retiree. Today, with the baby boomers entering retirement and retirees living longer, there are only 3.4 workers for each retiree and by 2025, there will only be 2.3 workers," said Sacks.

The expected effect of fewer workers to pay into the Social Security fund, and more retirees to support, is that the trust fund will begin paying out more in benefits by 2016 than it receives in taxes, and that it will be insolvent by 2038.

Politicians on both sides are busy looking at possible options to shore up the Social Security trust fund. And, a special panel created by President Bush is examining the controversial issue of allowing workers to set aside a small percentage of their payroll taxes for personal investment accounts. But workers should not expect a comprehensive solution soon, according to CCH.

"The message should be clear to those who want to truly enjoy retirement: Social Security won’t cut it," said Nicholas Kaster, an attorney and senior IRA and pension analyst for CCH. "You have to take a proactive approach to investing to accumulate the reserves you’ll need to see you through retirement."

Among the retirement planning steps employees may want to mull over as they head into the long weekend include:

  • Start Investing Early and Invest Regularly. Just like with voting, the adage early and often applies to saving for retirement. Studies indicate that more than one-third of employees have not yet planned for retirement. But the longer you put it off, the harder it will be to obtain your investment objectives.
  • Invest Appropriately to Your Age. Many studies also have indicated that workers are allocating too much of their retirement savings to low-interest investment vehicles.

"If you’re young and have a long investment horizon, investing more aggressively in equities has historically shown a significantly higher rate of return," said Kaster.

  • Contribute the Maximum to your Employer-Sponsored Retirement Account. This is a relatively "painless" method of investing because the amount is deducted automatically from your paycheck. For 2001, the maximum contributions are $10,500 for 401(k) and 403(b) plans. Under the Economic Growth and Tax Relief Reconciliation Act of 2001, passed earlier this year, maximum contribution levels will rise to $15,000 by 2006, allowing employees to shelter even more pre-tax income for retirement.
  • Take Advantage of "Catch-Up" Contribution Rules. Also under the new tax Act, those nearing retirement – age 50 and over – will be allowed to make "catch-up" contributions of up to an additional $1,000 next year to 401(k), 403(b) and 457 plans, and up to $5,000 by 2006. Participants in SIMPLE plans will be allowed catch-up contributions of up to $500 next year and $2,500 by 2006. Catch-up contributions for IRAs also will allow these taxpayers to contribute up to an additional $500 next year and $1,000 as of 2006 to their accounts.

"If you’re an older worker and you have not been investing to the extent you should, this offers you the opportunity to get your retirement planning back on track," said Kaster. "And, even if you have been saving diligently, if you have additional income you can put toward retirement now, you’ll be able to take advantage of the catch-up rules to further fund your retirement."

  • Evaluate the Benefits of Roth IRA Accounts. If your company does not offer a retirement plan or you’ve contributed the maximum to your employer’s plan and still have income you want to set aside for retirement, Roth IRAs may be a useful investment vehicle for you. Once you meet the withdrawal requirements for Roth IRAs, distributions don’t count as income, so you can still qualify for itemized deductions that are limited for people with higher incomes. Also, if you’re receiving Social Security benefits, your Roth IRA distributions won’t push your income up to make those benefits more taxable.
  • Don’t Take Possession of a 401(k) When You Switch Jobs. To defer current taxation, distributions from qualified retirement plans, including 401(k) and 403(b) plans, must be rolled over within 60 days. To avoid the 20-percent withholding, make sure your distributions are directly rolled over from your employer to an IRA or another qualified plan.
  • Encourage Your Employer to Offer a Retirement Plan. If you’re not covered by a retirement plan, you may want to speak to your employer. A nonrefundable tax credit for small businesses is included in the new tax Act to encourage small businesses to establish retirement plans, and those that do so will receive a credit of up to 50 percent of the startup costs incurred setting up a plan, up to $500 for the first three years of plan.

"Employees of small businesses are often not covered by retirement plans, but as workers increasingly realize that Social Security is not something they can rely on, the value of employee-sponsored retirement plans will continue to increase, meaning small businesses competing for the best workers are going to have to take a closer look at the importance of offering retirement plans," said Kaster.


CCH INCORPORATED, headquartered in Riverwoods, Ill., was founded in 1913 and has served four generations of business professionals and their clients. The company produces more than 700 electronic and print products for the tax, legal, securities, insurance, human resources, health care and small business markets. CCH is a wholly owned subsidiary of Wolters Kluwer North America. The CCH web site can be accessed at The CCH Human Resources Group web site can be accessed at

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