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I was fed up with the people who claim we’d all be better off if an equivalent sum of money was deposited into private accounts instead of Social Security, so I set out to prove them wrong.
I deserve a slap on the back from my spreadsheet loving engineer friends. From my first year working in 1969 to retirement in 2022 I listed wages by year, SS payroll tax by year, and the growth after 54 years if invested in the S&P500, assuming 10% per year.
Guess what. They’re right and I’m wrong. Sort of. That first $96 I paid into SS in 1969 would have been worth $17 grand on my 70th birthday. At retirement I would have had over 2 million bucks. A 4% withdrawal would have provided over $80K per year. That’s nearly 38% greater than my current SS benefit.
Theoretically you could double this amounts if you also calculated the employer contribution. But if you actually think your boss would have passed those savings on to you, I have a bridge for sale.
I could stop right here and let RQ try to tell me I’m wrong, but where’s the fun in that?
How many age 16 kids are going to open a brokerage account? What happens if they don’t get around to saving until age 26? For me, that would have reduced my amount by $521K. That’s still not bad, my distribution would still be about $10K per year better than SS.
In reality I didn’t start to save until 1984, when I was age 32. In this scenario I would have accumulated a measly $1.1 million, allowing me about $6K less per year than SS currently provides.
What if I would have blown out my back while delivering one of those 165 pound beer kegs at age 32, and ended up permanently disabled? Without SS disability insurance I would have had nothing.
I had two young kids and a stay at home wife. What if that keg instead fell on my head and killed me? How would my widow put food on the table without the SS survivor benefits?
Also consider the fact that most investors don’t do as well as funds they invest in… that’s if they bother to invest at all.
I’m sure that those who advocate for the elimination of Social Security would be just fine without it, but for us mere mortals I believe the insurance provided is worth the cost.
Today with the preponderance of low cost index vehicles, no transaction cost brokerages, it’s remotely possible. That’s a relatively recent event.
Also, SS is part social policy so that we don’t go back to seeing senior citizens dumpster diving and eating pet food.
Thanks for going through those calculations. I really appreciate that.
I don’t think Social Security should go away, but the obvious answer your question is simply that we would all pay a Social Security tax, but it would be much lower-only enough to cover those beer keg type of accidents you mentioned.
people without the beer keg accident would then have the return you described, all other the variables being equal (which, of course they wouldn’t be).
SS is a tax and younger people who say they’ll never get a dime view it as such. In fact, the Clinton administration sought and obtained a legal ruling that as a tax the government could spend the monies collected in any manner it chose; roads or whatever. Such a decision could have grave political consequences. However, it is an essential part of most retirees’ income. I am suspect of the complaints about it, particularly from anyone who has significant school debt. I’m not sure they have the financial acumen to make good financial decisions including saving 30 years for retirement. Those seeking a school bailout will possibly need one in retirement, too.
However, we all face the same SS dilemma. Unless politicians do something dramatic, SS taxes must increase, and benefits may decrease. Some financial experts recommend including a benefit decrease in one’s financial plans. I wonder how many retirees could deal with a 20-25% benefit decrease? This could pose grave difficulty for many; the average SS benefit could decrease from $1,862 to $1,397 per month. Increasing taxes on workers to make up shortfalls to those on benefits will not be received well. While benefit reduction is of no consequence to anyone who is not receiving SS benefits, increasing taxes will continue to be a source of enmity.
Of course, if one views SS as a “tax” then one can choose to save more and work longer. Any benefit, no matter how slight, then becomes a “bonus” and may be a source for discretionary spending in retirement.
I think it is safe to say that any changes to SS will not affect those who are currently receiving benefits. SS has been described as a “third rail” politically and I doubt policians will be willing to risk the ire of the increasingly large number of those receiving benefits.
The 1983 legislation that phased in an increase in the FRA resulted in a reduction in benefits but this change didn’t affect anyone who was over 45 when it was passed. Taxing benefits also reduced net SS income for many retirees. Reductions of this nature are more likely than a reduction in the SS income that beneficiaries currently receive.