Social Security is ripping me off!

Great Debates
1

I got my Social Security statement in the mail recently. I am going to share the numbers with the teeming millions to illustrate how badly I am getting robbed by this ponzi scheme.

Couple of notes:

I was in high school and college up until 2000, so that explains the random numbers.

2001 was my first year working full time, but I worked two different jobs with some amount of time in between so I am not giving up any true salary information. (I’m slightly paranoid about employers finding me disclosing salary info).

The SS document states that the numbers they are giving me are estimated for me if I continue to make my 2001 income every year until retirement. This is right about at the average household income in America of around $50K so it’s a good number to use.

What SS is taking:

So over the total working career SS has taken from me $ 6,271 plus medicare 1,464. ( from the SS letter ) For a total of ** 7,735**.

When I do the math I get: Total income of 101, 226 x 7.5% = $ 7,592.

So, despite the slight gap, things look ok. I should also note that this amount doubles because according to the letter my employer is also paying the same amounts that I am. AFAIK, economics experts are in agreement that this tax is passed right along to the employee in terms of wages so I am including it.

My benefits:

According to the SS letter I will be recieving the amount of: 1,611 a month when I retire at the retirement age of 67. (It's only 1,334 if I retire “early” at 62, or $ 1,998 if I retire late at age 70.)

Also, the letter tells me that if I am disabled I can expect to recieve $ 1,248 a month. If I die my family would recieve 255 plus a max of 2,820 per month, depending on some factors.

Breaking it down:

First of all, I don’t care about the disability and death benefits. I am single and young. If I were to have a family I would pay more out of my check for these benefits which are provided by my employer at much lower cost for much more benefits.

So, if I continue working for 51,131 a year I will be paying a grand total of ** 7,670** a year in SS taxes.

Total income (51,131) x 7.5% (SS rate) x 2 (Employer match)

If I didn’t have to pay this tax I would aggressively invest in the stock market. I would buy index funds that track the S&P 500, Dow 30, Russell 2000, and the Wilshire total market. Over a long investment timeline I could expect to see the historical average of 12% returns on my investment.

I am 26 years old. Lets say I am going to retire at 67. Thats 41 years for my money to be compounding.

So:

Present Value: 0
Payment: $639.17/month (Thats the $7,670 broken out into monthly pmts)
Interest: .01 (This is the .12 interest broken up monthly)
n (number of periods): 492 (This is the 41 years x 12 months per year)

These numbers into a financial calculator (or MS Excel) get me:

Future Value: $ 8,481,437

This means that if I get to invest the money on my own I will find myself at age 67 with $8,481,437 in my retirement account.

Or, I can continue to pay into the SS sysetem and retire at age 67 with the promise that the federal government will pay me $ 1,611 a month.

I want out!

Can anyone defend this system?

2

Social INsecurity…

:frowning:

Sorry. Our country is hooked on it. You can’t get out.

People forget there is no free lunch. Someone always has to pay. That means you.

3

You can’t win. You can’t break even. You can’t even leave the game. Nothing to do but relax.

BTW, you’re not paying for your own social security benefits. You’re paying for mine (or you will be, when I retire in about ten years). I paid for my father’s. Your children (and/or my grandchildren) will be paying for yours. Think of it as another income tax variant.

4

Or as a pyramid scheme.

When I’m 67 they will be destroying the financial future of some poor 26 year old to pay for me, because I wasn’t allowed out.

5

I’m all for you opting out of social security and going it alone. I am also in favor when your investments don’t pan out as you expect, even go a deep six and you never earn what you think right now what you’ll earn that the then social security system does not help you, ever.

However, since the social security tax you pay right now (and it is a tax) pays for current retirees, as WillGolfForFood says, current workers will still have to pay for current retirees until the social security dependent pool is dead.

So even if Bush manages to privatize social security and let’s you young folk invest in you own retirement, you will still have to pay for current retirees and all those who opt to stay into the system, until everyone is self-retirement invested and the SS dependents are all dead. In short, you will pay twice the tax you are paying now - half to yourself to invest on your own and the remainder into social security.

6

I generally think SS is a good program although in many ways badly implemented (and abused as a slush fund).

However they should give people a chance to opt out so long as they waive all rights to ask for federal aid afterwards (e.g. Enron tanked right before you retired? Not our problem you chose to roll the dice buddy…)

7

Two points:

SS is 7.65% not 7.5% (x2 of course)

I don’t know where you can get a constand 12% gain, but please let the rest of us know!

Using a more reasonable 5% return, you still come up with:
$1,033,137.19

8

Tell me again: is there a reason besides their voting solidarity why I must pay retired people? Any reason why it is more moral then simply being mugged by them?

9

A 5% return is more reasonable if you are investing in Bonds, emarkp. A 12% return is about what to expect with the stock market with a long term investment horizon.

10

Oh, and emarkp, thanks for the correction on the amounts. That must be why my numbers were off by about a hundred bucks.

11

Exactly, one big generational pyramid scheme. I don’t expect to ever see any of the dollars I pay into Social Security. Which is just another reason for me to become independently wealthy long before I have to worry about that sort of thing.

12

I despise Social Security, but I do feel the need to point out that the SS tax rate is “only” 12.4%, not 15.3%. The remaining 2.9% is for Medicare, which is another subject for another day.

Also, I’m not quite sure how that SS letter reads, but I believe the $1611 benefit is in current dollars. In which case the relevant rate of return on your private investment is the return after taxes and inflation. Depending on how you invest, you can shelter some of your gains from taxation. But I still agree that 12% is too optimistic. You’ll need to transition to more conservative investments as you approach retirement. I think 6-8% would be more realistic after taxes and inflation.

Having said all that, however, the situation is even worse than your calculations show. The SS letter assumes that the current program will be sustained for the rest of your life. It won’t. It can’t be. This isn’t my opinion, it’s a mathematical fact. Current tax rates are insufficient to pay future benefits. Long before you retire, the system will require either huge tax increases, or huge benefit reductions. Or it will need to be funded out of general income tax revenue, which will mean you’ll be paying twice. There will be no other solution.

Social Security is a disgrace, an obscene ripoff which has prevented generations of working-class Americans from accumulating wealth. Any liberal who really cares about America’s “working families” should be working night and day to privatize as much of this program as they can, as fast as they can.

13

It be a little more illuminating if you did the final step of the calculation: converting the monthly benefit number into a number we could actually compare with the $8,481,437 (or the “more reasonable” $1,033,137.19). You can’t compare a monthly payment of $1,611 to a value taken all at once. What’s $8,481,437 get you, spread out in monthly doses for your retirement period?

14

That’s a little bit tricky because we don’t know how long Debaser will live. Let’s generously assume he (or she) lives to be 92, so that he collects SS benefits for 25 years. Let’s also use the correct tax rate of 12.4%, and a compromise figure for real after-tax return on investment of 7%. Also, to simplify the calculations, I’m going to assume annual instead of monthly payments (it makes very little difference).

Then Debaser is paying $6,340.24 per year in SS taxes.
The compounding factor for 41 years @ 7% is 214. 61.
So he would have $1,360,679 in current dollars upon retirement.

SS will pay $19,332 per year for 25 years.
The annuity factor for 25 years @ 7% is 11.65.
Ergo the SS benefit is worth $225,287 as a lump sum.

I hope Debaser doesn’t miss the extra million dollars. And again, this is assuming current SS taxes and benefits continue unchanged for another 66 years, which they won’t and can’t.

15

And how do propose doing this without ripping off the people at or near retirement age who have already paid into SSI for all of their career? Are you going to cash them out with the value of what they put into it? Where is that going to come from, if not from young workers? Are your going to grandfather them in, and pay their benefits? Where is that going to come from, if not from young workers? Or are you just going to say, “Oops, tough luck, go live with your kids”? You’re right, somebody is going to get screwed, but by God, I will vote to make sure it is whippersnappers like you, rather than me. I didn’t create this damned system, and I sure as hell won’t be the fall guy, not without a fight anyway.

16

Because we live in a society where we don’t want to have to step over a bunch of homeless geezers on our way to the store? Because we already had a time period without social security, and the pesky stock market crashed destroying the wise investments that people did make? Because if your poor and your too old to work your only other option is to starve to death, snd that sucks?

17

I’m in the same position, and of the same opinion, as Fear Itself.
I’m going to make sure I get mine. You youngsters’ only hope is to do something so that your kids aren’t burdened by the system, and can afford to support mom and dad when you retire. Ok? :slight_smile:
Peace,
mangeorge

18

I’ll try to defend social security, a little bit anyway.

Mainly, you are criticizing social security as if it were some kind of 401(k) type program. The reality is that social security is a wealth redistribution scheme, dressed up to look a bit like a retirement savings program.

As such, it is hardly surprising that some people will take out less than they put in.

Unless you are a serious libertarian, you will probably agree that wealth redistribution is not, in principle, an outrageous agenda for government to pursue.

How do you feel about AFDC? I imagine that most dopers will put in far more than they get out.

Also, in principle, it is hardly outrageous for the government to redistribute wealth from working people to elderly people. No, it doesn’t work out perfectly fairly in practice, but come on - SS payments help support lots of deserving old people.

Finally, with respect to the imminent collapse of social security, I say gimme a break. When the time comes, they’ll raise taxes a little, reduce benefits for the more wealthy retirees, and continue. Don’t forget that (1) productivity in the US continues to increase; and (2) we have a steady influx of young, energetic people from other parts of the world. When the baby boomers start needing their SS, we’ll find a way to take care of them.

19

I saw a 20/20 John Stossel report that said smokers save the government overall more money than they put a burden on the health system because they die early, and hence don’t stick around to draw SS or Medicare benefits (I don’t have a cite, maybe someone else does?). I suppose if we made it more palatable to smoke again, and let teenagers smoke, and stopped all the anti-smoking campaigns, we could save a lot of money and transition to a privitization scheme.

By that token, we should also not discourage drug-addiction, since I guess that heroin and crack addicts probably die earlier too.

Ok, I’m sort of joking here, so nobody take me too seriously, but on the other hand, when you see me smoking, you should thank me for doing my part to shore up social security.

20

I’ll throw a reality based scenario into the discussion.You’ve diligently invested to the tune of abt.a mil.5 (the real life figure-Warren Buffet doesn’t do 12%),and you make plans for your retirement scenario,budgeted for the 1.5 mil.

Then out of the blue a new administration gets selected.Your 1.5 becomes 1 mil.Oh,well sez you it’ll go up again,but as you’re actively using your now shrunken pot,further reducing it’s value,the equity markets keep dropping to the point a CD won’t keep pace with inflation.

Now what?Die earlier?OOps wait a minute before you die you’ll probably have your pot shrink even more from medical expenses that keep you relatively pain/symptom free until the end.

At least in this real life scenario SS keeps food on the table,little as it is.But other necessities like home maintenence,transport,etc,still keep on chewing away at that precious fund you’ve got left.

Without that where are you?Not a promising prospect.And contrary to the 20 somethings fears-and the fearmongering politicos.SS won’t go bust.As was mentioned the rates will probably climb,with other adjustments as time goes on.That’s where budgeting and 401ks come in.That is if we can keep the politician’s hands off the fund for general funding.