The High Cost of “Free”

Ludwig von Mises Institute ^ | Wednesday, June 05, 2013 | by Loyd S. Pettegrew and Carol A. Vance

[Sopater]

Preaching to the choir, I know...

Good article though. ;-)

[no-to-illegals]

gonna love it when the low information voters find out.

[E. Pluribus Unum]

Free-DOM trumps Free-STUFF every time.

[Sopater]

Only retirees who survive a decade or less after their retirement do not take more out of Social Security than they contributed.

I'm sure our beloved gov't is working on ways to ensure that more people don't survive more than a decade after retirement.

[SMARTY]

“I’m sure our beloved gov’t is working on ways to ensure that more people don’t survive more than a decade after retirement.”

They did it already... they eliminated ‘retirement’!

[justlurking]

Bump for later response. This statement is not accurate if you account for income level. I have a longer explanation, but not on my phone. Reply to me here if you want to be included.

[stylin19a]

the free cellphone program was instated by President Bush in 2008 through the FCC’s Universal Service Fund.

The funed (which once had billions) almost immediately went into the red and is still growing red under Obama.

[Sopater]

...they eliminated ‘retirement’!

For everyone except state/federal workers.

[Sopater]

Reply to me here if you want to be included.

Please...

[tbw2]

The insidious nature of entitlements shows up more and more often. Personal example this week, signing up my kids for summer daycare program. The standard medical waivers and liability forms and contact information is familiar. The sticking point was the “free lunch” program. I refused to fill it out, stating I made too much. The clerk called me the next day, this form is MANDATORY.
I confronted the center director. They said they need this to help pay for food at the center, and enroll everyone. I said this wasn’t necessary, because I make too much to qualify. They said it was mandatory for enrollment. I wrote down “too much” in the income category and finished filling out the form with information like my address, household members and signature.
I don’t want to fill out a form under threat of perjury for a program I do not qualify for in order to use a private service. Yet I was stuck with that because of the childcare center choosing to accept entitlements.

[DuncanWaring]

As Walter Williams puts it, “In order for one person to get a thing without paying for it, another person must pay for that thing without getting it”.

[barefoot_hiker]

You can do the math on your own wages, assuming a lifetime salary of $100,000 per year for all 40 working years, a worker will have paid in only $120,000 into the Medicare system

"Only" $120K. And they conveniently leave out the other $120K paid by the employer (which the employer could have paid to me in additional salary or benefits). And that a prudent person would invest that money and probably end up with a substantial sum that could be passed on to heirs if it was not used during ones lifetime.

[RedStateRocker]

What a pantload.

I got laid off in July 2012.

Let me tell you, unemployment is *NOT* as much as working even the crappiest job. And it runs out.

I worked every crappy job that came my way until I finally got one making 2/3 of what my old one did, but even taking *ANYTHING”, being college educated, 21 years of gainful employment, drug free, yada yada, I damn near exhausted EDD before landing my new position.

Anyone,ANYONE who tries to tell me the unemployed, or those on “welfare” have it better than even the lowliest wage slave is so full of crap they should be slapped hard enough to prevent them ever posting again. Blather and lies form the right are just as bad as blather and lies from the left.

I don’t really care what data or statistics someone comes up with, I’ve been there, and unless you’ve actually BEEN unemployed and TRIED to get by on even the most “generous” benefits sans employment you do not know what you are talking about.

These assclowns dishonor Ludwig.

[itsahoot]

"Only" $120K. And they conveniently leave out the other $120K paid by the employer (which the employer could have paid to me in additional salary or benefits). And that a prudent person would invest that money and probably end up with a substantial sum that could be passed on to heirs if it was not used during ones lifetime.

No fair pointing out the obvious. In fact Insurance providers used to tout the retirement benefit of a life insurance policy, you always got back much more than you paid in.

[Sopater]

ANYONE who tries to tell me the unemployed, or those on “welfare” have it better than even the lowliest wage slave is so full of crap they should be slapped hard enough to prevent them ever posting again.

I do wish that everyone on welfare/assistance felt as strongly as you do. God bless you.

[justlurking]

And that a prudent person would invest that money and probably end up with a substantial sum that could be passed on to heirs if it was not used during ones lifetime.

It's a substantial sum over 40 years -- especially the past 40 years.

If you assume that you would have invested those contributions into long-term Treasury bonds (the equivalent of what the trust funds are invested in), you would have seen double-digit returns during the 80's. After inflation it wasn't that large a return, but if you invested in a 30-year bond, you would still be collecting dividends on some of them.

[justlurking]

I don’t really care what data or statistics someone comes up with, I’ve been there, and unless you’ve actually BEEN unemployed and TRIED to get by on even the most “generous” benefits sans employment you do not know what you are talking about.

The articles I read about this look beyond unemployment, and consider the myriad benefits available, including tax credits.

There are also benefits to families with dependent children that you might not have been eligible for.

[justlurking]

Our economic analysis shows that retirees who worked for 40 years and then live 20 years past retirement will receive more than twice what they, and their employers, contributed over their lifetime of working. Only retirees who survive a decade or less after their retirement do not take more out of Social Security than they contributed.

This is a vast over simplification. If you look at every Social Security recipient, on average, this might be true. But, I don't think so. It also glosses over the fact that the average life expectancy at retirement age is another 17 years. So, the claim that you get more than you contributed after 20 years is really an empty criticism.

There are two factors to consider:

1. The cost of money over time. If you were just putting your contributions into a bank account, you wouldn't expect to earn no interest for 40 years, and only get back what you contributed, after the value has been depleted by inflation.

2. The ratio of contributions to benefits is not linear. Low income retirees get a much larger percentage of their contributions in benefits, while upper middle income retirees get a much lower percentage of their benefits.

I calculated the value of benefits at retirement vs. the value of your contributions at retirement, taking the cost of money into account. Each line represents a return on investments after inflation. Historically, long-term Treasury bond rates have been about 0.5% above inflation, so you can use the purple line to represent the results if you had invested your Social Security contributions the same way the administration did.

My assumptions are a bit different:

• Start working full-time at age 21.
• Retire at 67 (current "normal" working age) after 46 years of contributions.
• Life expectancy is 84 (average, at age 67), for 17 years of benefits.

The purple line crosses 100% at about $4,600/month -- which is very close to the median family income. If your average monthly earnings were less than that, you'd get more than you contributed. If it was more, you would get less.

The point that I'm trying to make with this graph is that you can't use a single point to compare contributions to benefits. Your average monthly earnings have a huge effect on the comparison, because the ratio between contributions and benefits is not linear.

If anything, the graph makes it clear that upper-middle income retirees are subsidizing lower-income retirees.

[RedStateRocker]

With all due respect, walk a mile in my shoes instead of paying attention to pundits, commentators or other such bloviators be they of right or left.

Been there, been through that; the opinions of anyone who hasn’t been unemployed in the last four or five years are not worth spit.

[justlurking]

Been there, been through that; the opinions of anyone who hasn’t been unemployed in the last four or five years are not worth spit.

If you could set aside your bitterness for a few seconds, you might realize that this article is not talking about the short-term unemployed. The article is about "wards of the state" (it even uses that term): people that choose it as a lifestyle, not a temporary situation.

This is someone making a concerted effort to avoid work, and taking advantage of all the subsidies, grants, credits, and benefits that are available. The example in this article is a single parent with 3 dependent children -- which further increases benefits.

Another article posted on FR a few months ago puts it a bit differently: you would have to earn a salary of about $57,000/year, pay all the requisite taxes and still have enough left over to replace all the benefits.

No, this wasn't your situation. But, that's not what this article is about.