# Social security.... return on your investment
**URL:** https://boards.straightdope.com/t/social-security-return-on-your-investment/558750
**Category:** Factual Questions
**Created:** [October 29, 2010, 11:53am UTC](https://boards.straightdope.com/t/social-security-return-on-your-investment/558750 "2010-10-29T11:53:28Z")
**Posts on this page:** 13
**Page:** 2
### Author:  [@CookingWithGas](https://boards.straightdope.com/u/CookingWithGas)
#### Post date: [October 30, 2010, 1:34am UTC](https://boards.straightdope.com/t/social-security-return-on-your-investment/558750/21 "2010-10-30T01:34:38Z")
> [@Exapno\_Mapcase](#):
>
> Social Security is not in any way a pyramid scheme. That makes the rest of what you said wrong. Fraud is not an applicable word.
>
> We can change everything about SS anytime we have the political will to do so. We have in the past. We will in the future.
I see that I reacted too quickly and used a loaded word. I do not believe that SS is literally a pyramid scheme, nor that the government is perpetuating a fraud. I do understand, however, **FatBaldGuy’s** cynicism. There are historical issues with the system. Even in 1998, after the 1983 reforms, the [GAO issued a report](http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=gao&docid=f:he98033.pdf)(PDF) saying
> [@](#):
>
> The aging of the “baby boom” generation, lower fertility rates, and increasing longevity have eroded the long-term solvency of the Social Security program. The system’s annual cash surpluses are currently projected to decline substantially beginning around 2008, and by 2013 benefit payments are expected to exceed cash revenues. The Social Security Trust Funds are forecast to be depleted by 2032, and from that point on revenues are expected to be sufficient to pay no more than 75 percent of promised benefits.
At that time, the bleak outlook might have appeared to people who had been diligently paying their OASDI taxes that they would never enjoy the same benefit that they had funded for others. In a [later publication](http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=gao&docid=f:d05193sp.pdf)(PDF) from 2005, GAO went on to predict that
> [@](#):
>
> Social Security’s benefit costs will soon start to grow rapidly. In 2017, Social Security is projected to pay out more cash in benefits than it receives in revenues. …after that time, the gap between costs and income grows continuously, and, unless action is taken to close this gap, the trust funds will eventually be depleted in 2041. …As a result of the aging population and the slower labor force growth, fewer workers will be contributing to Social Security for each aged, disabled, dependent, or surviving beneficiary. While 3.3 workers support each Social Security beneficiary today, only 2 workers are expected to be supporting each beneficiary by 2040.
The [Congressional Budget Office](http://www.cbo.gov/ftpdocs/104xx/doc10457/08-07-SocialSecurity_Update.pdf) (PDF) projected in 2009 that
> [@](#):
>
> But as the baby-boom generation (people born between 1946 and 1964) continues to age, growth in the number of Social Security beneficiaries will pick up, and outlays will increase much faster than revenues. The Congressional Budget Office (CBO) projects that the Social Security trust funds will be exhausted in 2043…Such long-term projections are necessarily uncertain; nevertheless, the general conclusions presented here hold true under a wide range of assumptions.
These projections perpetually add several years to the predicted demise of funding. If the GAO had made predictions in 1850 about traffic in New York City, they would have said that by 2010 it would be impossible to remove all the horse manure. So one might be tempted to take such projections with a grain of salt. But it can still be cause for concern to the average citizen who reads about it in the news (like me). And it is consistent with my description of the situation, aside from my use of the p-word. Nevertheless, as you say, with sufficient political will the government has the authority to simply tax at whatever level is necessary to fund the program, together with reducing benefits.
---
### Author:  [@SmartAlecCat](https://boards.straightdope.com/u/SmartAlecCat)
#### Post date: [October 30, 2010, 3:02am UTC](https://boards.straightdope.com/t/social-security-return-on-your-investment/558750/22 "2010-10-30T03:02:19Z")
> [@](#):
>
> While 3.3 workers support each Social Security beneficiary today, only 2 workers are expected to be supporting each beneficiary by 2040.
Sounds like it is time to start revising our immigration limits…
---
### Author:  [@What\_the](https://boards.straightdope.com/u/What_the)
#### Post date: [October 31, 2010, 2:08pm UTC](https://boards.straightdope.com/t/social-security-return-on-your-investment/558750/23 "2010-10-31T14:08:26Z")
Very complicated issue… here is a hypothetical (I apologize if the answer is up there somewhere)…
Two people who are very much alike. One works 10 years and makes $20k a year…the other works 10 years and makes $100k a year.
Can the second one expect to get a monthly benefit that is five times that of the first?
If not, what factors caused that?
---
### Author:  [@CookingWithGas](https://boards.straightdope.com/u/CookingWithGas)
#### Post date: [October 31, 2010, 2:32pm UTC](https://boards.straightdope.com/t/social-security-return-on-your-investment/558750/24 "2010-10-31T14:32:22Z")
> [@What\_the](#):
>
> Two people who are very much alike. One works 10 years and makes $20k a year…the other works 10 years and makes $100k a year.
>
> Can the second one expect to get a monthly benefit that is five times that of the first?
>
> If not, what factors caused that?
I didn’t take the time to work this out but there is an [online calculator provided by SSA](http://www.ssa.gov/OACT/quickcalc/index.html)that can probably answer the quantitative part of the question.
---
### Author:  [@CookingWithGas](https://boards.straightdope.com/u/CookingWithGas)
#### Post date: [October 31, 2010, 2:38pm UTC](https://boards.straightdope.com/t/social-security-return-on-your-investment/558750/25 "2010-10-31T14:38:39Z")
> [@CookingWithGas](#):
>
> I didn’t take the time to work this out…
Curiosity got the better of me. Earning $20K for 10 years starting last year, $376 a month. At $100K, $1019 a month, factor of 2.7 (not 5). Don’t know the formulas they use or the rationale.
---
### Author:  [@CookingWithGas](https://boards.straightdope.com/u/CookingWithGas)
#### Post date: [October 31, 2010, 2:46pm UTC](https://boards.straightdope.com/t/social-security-return-on-your-investment/558750/26 "2010-10-31T14:46:23Z")
OK, one more addition.
Here is some information about [how it is actually calculated](http://www.ssa.gov/pubs/10070.html) but still doesn’t give the “why.” I imagine it is analogous to how the IRS provides forms and worksheets to implement certain formulas. The formulas are pretty clear but to understand the source of the formulas you have to delve into the tax code. To understand the tax code–well, the rationale for the tax code itself is a much stickier matter to unravel.
---
### Author:  [@barbitu8](https://boards.straightdope.com/u/barbitu8)
#### Post date: [October 31, 2010, 8:58pm UTC](https://boards.straightdope.com/t/social-security-return-on-your-investment/558750/27 "2010-10-31T20:58:14Z")
> [@Polycarp](#):
>
> I think this is close to accurate. Legally, it’s _sui generis_ – a plan underwritten by a dedicated tax which provides benefits to those meeting certain criteria. You cannot calculate a ROI on it any more than you can calculate your ROI on gasoline tax and highway usage. But it functions most like an annuity, in that you need to be of a particular age or disabled and have worked with earnings above a specified amount for a particular number of quarters, or be the dependant of someone who has so worked. All those generalizations are spelled out in law, and of course it’s a rather complex bit of law, with different minima for being the dependant of a deceased taxpayer, a disabled person, or a retired person.
Exactly. SCOTUS decided years ago that Social Security system is not insurance. If it were insurance, it would be contra to the US Constitution. And, as Markxxx noted, he got benefits based on the earnings of the primary insured individual. Childen under the age of 16 (was at one time 18), widowers/widows, and a few others can get benefits based on a PIA (primary insured amount) of a relative, without ever working (“survivor benefits”). So, it is the single person who gets the least amount back.
[http://www.ssa.gov/OP\_Home/cfr20/404/404-0204.htm](http://www.ssa.gov/OP_Home/cfr20/404/404-0204.htm)
[http://www.ssa.gov/OP\_Home/cfr20/404/404-0211.htm](http://www.ssa.gov/OP_Home/cfr20/404/404-0211.htm)
[http://www.ssa.gov/OP\_Home/cfr20/404/404-0212.htm](http://www.ssa.gov/OP_Home/cfr20/404/404-0212.htm)
---
### Author:  [@What\_the](https://boards.straightdope.com/u/What_the)
#### Post date: [November 1, 2010, 4:30pm UTC](https://boards.straightdope.com/t/social-security-return-on-your-investment/558750/28 "2010-11-01T16:30:04Z")
Not “exactly”.
As pointed out above, you can calculate an ROI on anything. Also as pointed out there are other factors…but you can calc an ROI.
FWIW, states calc an ROI on Fed gas taxes and the Fed money that comes back to their states all the time.
---
### Author:  [@35\_U.S.C](https://boards.straightdope.com/u/35_U.S.C)
#### Post date: [November 1, 2010, 6:27pm UTC](https://boards.straightdope.com/t/social-security-return-on-your-investment/558750/29 "2010-11-01T18:27:40Z")
> [@CookingWithGas](#):
>
> Curiosity got the better of me. Earning $20K for 10 years starting last year, $376 a month. At $100K, $1019 a month, factor of 2.7 (not 5). Don’t know the formulas they use or the rationale.
Interestingly enough, when I inputted an annual salary of $300,000, the following note was displayed “Note: For your benefit calculation, we limited your earnings to the $106,800.00 taxable maximum for 2010” and the benefit it said I would be entitled to in the year 2046 in 2010 dollars was $2,325 per month.
---
### Author:  [@barbitu8](https://boards.straightdope.com/u/barbitu8)
#### Post date: [November 2, 2010, 12:29am UTC](https://boards.straightdope.com/t/social-security-return-on-your-investment/558750/30 "2010-11-02T00:29:23Z")
> [@35\_U.S.C](#):
>
> Interestingly enough, when I inputted an annual salary of $300,000, the following note was displayed “Note: For your benefit calculation, we limited your earnings to the $106,800.00 taxable maximum for 2010” and the benefit it said I would be entitled to in the year 2046 in 2010 dollars was $2,325 per month.
FICA “taxes” are only on $106,800 for 2010. Everything you earn above that is not subject to FICA, and hence not computed in your SS benefits.
What the … !!!
> [@](#):
>
> Not “exactly”.
>
> As pointed out above, you can calculate an ROI on anything. Also as pointed out there are other factors…but you can calc an ROI.
>
> FWIW, states calc an ROI on Fed gas taxes and the Fed money that comes back to their states all the time.
Not exactly. Too many factors: survivors who may be entitled (dependent children, widow/widower over the age of 62 (50 if disabled), a surviving divorced spouse together with a widower, etc. SS sends you an estimate for your benefits at full retirement (deduct 5/9% a month for early retirement), but you can die before that, or become disabled. If you become disabled, you will get benefits based on early retirement. If a dependent child becomes disabled before reaching age 21, he or she will be entitled to benefits for life, or until is disability ceases.
---
### Author:  [@suranyi](https://boards.straightdope.com/u/suranyi)
#### Post date: [November 2, 2010, 3:53pm UTC](https://boards.straightdope.com/t/social-security-return-on-your-investment/558750/31 "2010-11-02T15:53:56Z")
> [@barbitu8](#):
>
> FICA “taxes” are only on $106,800 for 2010. Everything you earn above that is not subject to FICA, and hence not computed in your SS benefits.
Right: Social security taxes are capped, because the benefits are also capped.
---
### Author:  [@Polycarp](https://boards.straightdope.com/u/Polycarp)
#### Post date: [November 2, 2010, 4:07pm UTC](https://boards.straightdope.com/t/social-security-return-on-your-investment/558750/32 "2010-11-02T16:07:24Z")
> [@What\_the](#):
>
> Not “exactly”.
>
> As pointed out above, you can calculate an ROI on anything. Also as pointed out there are other factors…but you can calc an ROI.
>
> FWIW, states calc an ROI on Fed gas taxes and the Fed money that comes back to their states all the time.
Okay, what’s the ROI to you on your marriage? your children? your local fire department? I don’t intend this as polemic but as illustrating the point that not everything can be conceived of as having a ROI – while Social Security functions _largely_ as an old-age pension, it’s a tax and an associated entitlement. It’s intended to ensure that no one is in penury – not to replace entirely retirement plans etc.
Granted a figure for what people pay in in FICA taxes vs. what they likely will draw after retirement given actuarial assumptions cam be generated, it is in my mind not legitimate to compare this with retirement plans, because their intent and functions are significantly different.
---
### Author:  [@Ruminator](https://boards.straightdope.com/u/Ruminator)
#### Post date: [November 2, 2010, 4:34pm UTC](https://boards.straightdope.com/t/social-security-return-on-your-investment/558750/33 "2010-11-02T16:34:05Z")
> [@Polycarp](#):
>
> Okay, what’s the ROI to you on your marriage? your children? your local fire department?
One can calculate the ROI on these things if one really wants to. It’s not impossible. Just because it comes across as inhuman doesn’t mean it can’t be done.
The same flaw with ROI exists in the opposite direction. Can you calculate an ROI on a USA savings bond? You spend $100 and you get $105 at maturity. Is the “ROI” really 5%? No, because with that bond, you also got to express your _patriotism_ and _enriched the country_ by temporarily loaning your money and _how can you put a price on that_? Since all the “benefits” of savings bond can’t be _quantified_, the ROI for USA savings bond is flawed and pointless.
> [@](#):
>
> , it is in my mind not legitimate to compare this with retirement plans, because their intent and functions are significantly different.
This doesn’t matter. If someone _wants_ to frame it as an ROI, he can calculate an ROI. Now, whether one _should_ frame it that way even before putting pencil to paper is separate issue.
[Previous page](https://boards.straightdope.com/t/social-security-return-on-your-investment/558750.md?page=1)