You are right. SCOTUS ruled that SS is not insurance, in order to decide it was constitutional. But it is referred to as insurance even by SS.
I believe it’s calculated on your highest 35 years of earnings which would in most cases exclude earnings before age 21 but wouldn’t necessarily exclude the under-21 earnings of someone who earned more as a teenager than they later earned as an adult. (model,actor, athlete, left the workforce at 25, etc)
No. IIRC it does not include wages before age 21. When I have more time I will research it.
Have you tried to estimate your SS income? Here is the calculator
Yes. That’s the current calculations, which everyone knows will not be able to hold as long as SS is expected to be self-funding. I know that I will almost certainly not be getting what it says I should be getting according to the calculations. And I know that it is going to be a lot less than the baby boomers are getting. I am just hoping that it isn’t so drastic a reduction that it amounts to basically nothing.
I guess I am an optimist.
I am a boomer who expects to live another 20 years and I do not expect a decrease (like the 77% in 2033 shown on the estimator page) in benefits. There are simple fixes to be made and congress has done such before.
I just ignore the SS gloom and doom and political posturing that has become a tradition on Capitol Hill…
In part it definitely is insurance. You can collect Social Security if you get disabled young. This is just like private disability insurance. Also your benefits continue as long as you live. This is like a private insurance industry’s annuity contract. Both of those are definitely types of insurance.
And has been pointed out by others, when you compare what you get back in retirement to what you put in, you should not really count that portion of your payments that were used to “purchase” your disability insurance.
I think it is factual to say that the average RoI of SS is lower than the market. That’s because the investment is safer, which is a good thing.
Those wishing for a more voluntary system should look at what is happening with 401Ks. Not allowing people to take money out of SS is a good thing, especially in times of economic upheaval.
Some countries have mandatory retirement plans that go into a selection of more regular investments. Thaler and Sunstein in Nudge show that people make bad investments - basically buying at the top. But a bigger problem for the US is that all that money will distort the markets. Plus, any subset of investments which will get SS donations will rise in price because of greater demand, so the incentive for corruption would be tremendous.
It is also factual to say that part of the reason for the lower RoI is that participation is mandatory, so they don’t have to compete with other investments.
It is also factual to say that the RoI is lower because it is safer. However, this is not always a good thing. Some of us are willing to tolerate a higher rate of risk to get a better RoI. Historically, this has been borne out by the history of the markets since the Great Depression. The market nearly always outperforms Social Security over almost any period (cite. Even if you put the money into Treasury bills you would do better (cite). Keeping also in mind that if you die before retirement, the RoI for you and your estate is zero. (I assume no one needs a cite on that.)
Since we are still in GQ, I suppose we need only note that the answer to the OP is that, on average, retirees currently get back more than they put in. That will probably change in the future.
Regards,
Shodan