Skip to comments.So, can we do better? (SS vs private number crunching)
Posted on 07/20/2004 8:50:20 AM PDT by qam1
As a Gen Xer, I never figured that there would be anything left in the Social Security piggy bank by the time I was ready to retire.
Is that fair? Probably not. But since retirement is at least 35 years off, it seemed prudent.
So how dire is the Social Security situation?
The folks at the Heritage Foundation, a conservative think tank, believe that the best answer to the problem is total reform of the system to let workers put their contributions in personal retirement accounts (PRAs).
There's a calculator at their Web site (www.heritage.org) that lets people who have not yet reached retirement age calculate the difference between benefits they can expect from the current Social Security system and earnings if their FICA taxes had been invested in a personal retirement account.
The differences are startling.
I used myself as the first model -- a 32-year-old woman living in ZIP code 76017 -- but for salary I entered $36,232, or one-half of the median income for families in my ZIP code, according to the North Central Texas Council of Governments. The Heritage Foundation program used my ZIP code to determine my life expectancy and arrived at 83.27 years.
The calculator also estimated my earnings in previous and future years assuming an average change in wages.
Using those numbers, I would pay $222,000 into the Social Security system over my working life and, upon retiring at age 67, would receive monthly benefits of $1,821. That's a 1.67 percent rate of return.
The program lets you determine how to invest for your PRA, and I used the default of 50 percent blue-chip stocks and 50 percent treasury bonds.
The total value of the PRA upon my retirement would be $711,009, with a rate of return of 5.03 percent.
The calculator presumes that the money would be converted to an annuity but gives a choice of using it only for myself or using half of it and being able to pass on the rest to heirs.
If I chose to use it all myself, I'd receive monthly benefits of $5,792, or a rate of return of 5.39 percent. If I chose instead to use half, I'd have monthly benefits of $2,896 and would pass on $763,698 to my daughter.
President Bush and Sen. John Kerry, both far wealthier and much closer to retirement than I, see similar results.
The figures generated by their current salaries ($400,000 for Bush and $150,000 for Kerry) don't reflect their net worth.
Bush, who recently turned 58, is projected to retire at 66 and live to be 78.33, a figure determined by his White House ZIP code. Under the current Social Security system, he'd receive monthly payments of $2,252 after having paid in $323,560 over the course of his working life. The return on his benefits? A paltry 0.15 percent.
Keep in mind that these numbers are just estimates using some very public figures' very public salaries.
Heritage figures that, with the same PRA allocations I used, his account would be worth $1,536,076 upon retirement -- a rate of return of 6.87 percent. Using that all for himself would mean monthly benefits of $12,151; passing half of it on would provide $6,075 each month and leave $1,362,825 as a bequest for his heirs.
Kerry, who is 60, is projected to retire at 66 and live to be 79.78, using his Beacon Hill townhouse's ZIP code for the calculations. Under the current system, he'd receive $2,186 each month after paying in $307,083 during the course of his working life. He'd do marginally better than the president on rate of return: 0.67 percent.
Using the same PRA allocations, his account would be worth $1,415,140 upon retirement, with a rate of return nearly identical to Bush's. Using it for himself alone would mean monthly benefits of $11,194. Or he could receive $5,597 each month and reserve $1,316,988 for his heirs.
Something tells me they'll manage without it.
But for middle-class Americans, the differences could be significant.
The Congresscritters are exempt from SS. Not sure about the Prez.
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Neat! Now how soon can we rid the U.S. public of this sham called Socialists' Security?
It needs to have a stake driven through its heart.
If all dollars currently going to SS are placed in a PRA, how is SS going to be funded? I assume it would be out of the general fund, which would require either more taxes or more debt. I'm not saying that SS diesn't need to be overhauled, it just seems that the Heritage Foundation is leaving that part of the equation out of their analysis.
For any American the difference would be significant. Starting at age 25, making only $25,000/year and investing just the amount that goes into Social Security (roughly 15% or $3750/year) each year after 40 years a person would have $580,357.37 at a paltry 6% growth rate.
BTW, the Heritage.Org calculator showed me with a return rate of -0.52% using only age/gender criteria. NICE investment USA!
Wishful thinking, However, we will never be able to get rid of it. The Liberals have been able to convince the public, over so many years, that they, themselves, cannot do it. They must depend on Uncle Sam to take care of it for them. PLUS -- the government will never allow that much money to be lost from their budgets. Where could they rush to get money when their programs fall short?
If we were to transfer the SS to a privately run company or organization, you can bet your last wooden nickel the government would rush to raise your Federal taxes to make up the difference. THEY are certainly not going to do without.
They DO NOT know how to live within a budget. We poor suckers are caught in a Catch-22 situation. That is why I put some money in an IRA or such.
Are any of these knuckleheads taking into account the money in individual 401k accounts? This are pretax dollars and if they have not been accounted for the best solution would be to allow election out of the SS Program in return for a reduced taxation or lump payment into SS on the 401k proceeds after 59.5 yrs of age. Any thoughts
Government workers in general are exempt from paying into the SS system. This includes state and local government workers (they pay into a SERS (state employment retirement system). State university and public school employees are also exempt from paying into the ss system also.
If the system isn't good enough for congressmen, presidents, any and all government employees, why are the the rest of us forced to pay into it? (Answer: SS,SSDI, and MEDISCARE assistance are only government tax scams. Just ask anybody who ever paid into it, needed it, and can't get it.)
I know Sarah Yoest Pederson. I just can't remember from where. Any info on her?
The 1st thing we must do is get rid of all the nonsense "services" that the fed gov is NOT authorized to do by the Constitution, but does anyway. Obivously this includes SS.
That way, we wouldn't have alot of "bills" to pay.
So, no "need" for alot of money.
Then, get rid of the income tax - also unConstitutional.
As for SS (or really any service), we'd actually get rid of it *gradually*. Grandfathered for those that have paid in (they should get it back), but no more at all for those too young that haven't started to pay. This gradual change would also help acclimate society at large to getting off the gov teat w/o being unduly unfair to those who were used to being on it.
Oh, I agree with you. I just don't believe the Liberals and Democrats (socialist) will allow us to get away with it.
They claim we cannot do it, but for a number of years I was under the Federal Retirement Program and didn't pay SS, so I know it can be done. I didn't make as much money in that retirement system as I would have in a 401k or ROTH IRA but, I nor the government perished during those 10+ years.
I guess we'd have to leave an option open for people who can't save a nickel themselves and must have someone else do it for them. Private investment is dangerous if you don't do your homework!!!
From the retirement age of 67 until the average lifespan of 72 (only five years), you will draw a total of $87,408.00 from the $222,000 you paid into the Social Security system during your working life.
Are we brainwashed, suckers or what???
Hey, you're a MDer too! Native?
I know they would hate it. But that's part of the gradual transitional method (main reason is to be fair and wean society back). Grease the skids for "the people" who normally wouldn't go for it after all the Communist brain-washing that they need/deserve it. But it would be easier to change a few "people's" minds than the actual politicians. Perhaps enough people accepting it, and we'd end up w/fewer of these lib politicians to oppose it.
For what it's worth, the same is true of all forms of insurance (and annuities are insurance), the average individual gets less in claims payments that he paid in premiums. That's how you pay for those who exceed the average.
The thing that IS kind of interesting in your example is the 23 grand of "administrative expense" that seems to have disappeared off the top of the average return.
Don't forget the Republicans and other politicians and bureucrats: you don't think they are also part of the problem? The truth is that there are very very few Constitutional Conservatives in government (can probably count on one hand -- Ron Paul is the only one I can name).
"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world's greatest civilizations has been 200 years. These nations have progressed through this sequence: "From bondage to spiritual faith; From spiritual faith to great courage; From courage to liberty; From liberty to abundance; From abundance to selfishness; From selfishness to apathy; From apathy to dependence; From dependence back into bondage." -- Alexander Fraser Tytler (later Lord Alexander Fraser Woodhouslee), in "The Decline and Fall of the Athenian Republic," published 1776
So what happens to all that money "you" don't get, cuz of dying?
That's a windfall for the gov?
Asking, seriously. But it has occurred to me before - no1 ever talks about what happens to your SS money when you die!
I think it's pretty obvious that there are much better "private" programs out there after running just a few numbers and that SS is a very poor retirement scheme.
I didn't bother to check actual costs of disability insurance because I didn't want to fill out their forms but from the Metlife website (www.metlife.com) they say a person is 2 to 3 times more likely to become disabled (out for average of 2.5 years) in their life time. I estimate that disability insurance probably is about the same as life insurance (maybe a little more) which makes it cheaper than what SS costs (15% for both employee and employer up to 87K per year).
Your dependents may each receive a reduced annuity based on what you have paid in. The government keeps the rest.
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