Replies

If your father’s $37,000 plus his employer’s matching $37,000 had been invested as it was paid into all through 40 years of work, it would have built to a tidy sum. Maybe more than enough to have paid what he and your mother have drawn from it.

You got me curious so I WAG’d some numbers into Excel. Beginning with $70/month in 1946 and using average wage inflation of 3.6%, 40 years of SS taxes would have totaled $74K. Your father + employer would have been paying in $300/mo total toward the end. Invested at 7% from the beginning as a 401k would have done, that would have grown to $300K. That would have provided $1600/mo income stream for 25 years — even allowing for 3% COLA so the last year would be at $3300/mo ! The total of all payouts would be $730K over 25 years.

If your $37,000 figure was for the total of employee+employer, the numbers above would just be halved and your parents would still not have exceeded what an investment plan would have provided.

Of course, that was not done. There was no money invested, it was simply used to pay out money to people as they retired, same Ponzi scheme as now.

But I’m not sure we should blame our fathers’ generation. It is actually the people that started collecting SS benefits without having contributed for 30 or 40 years. Our parents’ parents, in other words, that started collecting benefits in the 50’s after paying in for a small portion of their working lives.

$37,000 was the maximum amount that could have been contributed by both employer and employee contributions since 1946. I used the maximum tax amounts provided in the SSA website. My dad did not make enough to contribute the maximum amount until perhaps the end of his career. Most of the money was contributed late in his career so there would not have been a large compounding factor.

You need to use a risk-free rate in the compounding. Social Security benefits are risk-free. 7% is much too high for a risk free rate especially during the 50s, 60s, and mid 70s.

If the means testing had been started in the mid 80s, everyone would have become aware of the returns instead of complaining about the measly benefits. Means testing would have allowed annuitizing the benefits for at least the wealthy. The greatest generation could have been part of the solution instead of part of the problem. The attitude of the greatest generation has been a large part of the problem.