For those of you confused about the value of Social Security, take a look at this letter to the editor in response to a previous article about getting back what you pay into the system. If you look at your own figures you will find that you will get back all your contributions and your employer contributions within a relatively few years of receiving a benefit plus you get survivor benefits and a COLA (sometimes).
However, that is a limited way of looking at the return. A way favored by higher income analysts is to determine what you would accumulate with interest over your working life if you had the 12.4% Social Security tax to invest for yourself. Here is a simple example. A person earns a steady $60,000 a year and monthly invests 12.4% of income which is equal to the SS payroll tax and earns an average 7.5% annually. (yes, they can afford that because they are already paying that amount in taxes).
$2.7 million is a lot of money and would generate an annual income of about $111,520; far better than any Social Security benefit. It’s hard to argue with the math … but there are caveats.
- What if you are not disciplined and don’t regularly save?
- What if you are a poor investor and don’t make the 7.5% goal or worse lose money?
- What if you become disable long before your normal retirement age?
- What if you lose your job and must retire early at say 60?
- How will you keep up with inflation?
- What if you are faced with a financial emergency (or are tempted by a desired luxury) and recklessly use a big chunk of your retirement fund?
- How will you plan for survivor benefits?
Yes, if everything goes right and according to plan, the experts are right, you can beat Social Security … If
Are you in the “let me do it myself” camp?
I doubt Social Security was intended to be a good investment, but rather as Roosevelt said, “some measure of protection to the average citizen and to his family.”