Social Security

I could do better with the money than Social Security – what the “government stole from him” 😱u

Maybe, probably not.  Here’s the thing

if

in theory what Bob says here is true, but practically it’s a joke simply because there are so many

ifs

along the way.

If Bob actually followed a ridged saving scheduled over the entire 40 years, the big if

If Bob picked the right investments

If the timing was always right

If Bob didn’t incur early disability or death or had to retire early

If Bob was prudent in using his money and didn’t run out in retirement

If Bob had sufficient assets to provide for survivor benefits

If Bob was comfortable living in retirement managing his investments and not having a guaranteed income stream.

If, If, If … If you had no illness or injury after age 65, you could save by not paying the Medicare tax too.

Bob in Michigan wondered why Social Security is not structured more like a private, interest-bearing saving account. “This is the greatest extortion of all time – you pay into it, they take your money for 35 years and your employer also has to match that,” he said. “If I was able to take that money and put it in a bank account, and collect interest for 40 years, I would have a very substantial amount of money, and I could retire simply off that.”

Bob added this painful fact: his brother died last year at 61, and “never collected a dime” in benefits, and neither will his family. “If he was able to save (all the tax contributions he made to Social Security), he would have it for my sister-in-law and two sons. I calculated it at over $1.5 million that the government stole from him.”

Source: COLUMN-Questions, worries swirl around U.S. Social Security | Reuters

Categories: Social Security

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10 replies »

  1. Simply, he may be in the group that has paid in the maximum for over 35 years, who receives benefits that are dramatically less than the effective taxes paid, plus earnings, where Social Security taxes also apply. I am in a related group, and I can confirm my costs, even adjusted for syrvivor benefits and disability, are dramatically less than the present value of the taxes I paid over the past 50 years.

    They don’t call it “Social” for nothing.

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      • Any reasonable long term rate of return. When I do these types of calculations, I often use 6% gross, 3% real rate of return. Consider that the average rate of return for the S&P 500 over the 50 years ending December 31, 2018, including reinvested dividends, was 9.714% – that includes a number of recessions, a couple of market crashes, a period of hyperinflation, etc. In these calculations, I also convert the projected account balance to a single life annuity.

        During my 50 years of employment, of which I have been contributing to retirement savings plans for almost 38 years (since 1981), my average annual rate of return has been higher than 6% gross, 3% real.

        However, I probably would still lose money if I used a 2% rate of return. That is because I have already paid Social Security taxes for 10+ more years than the 35 used in my SSPIA calculation, and because for almost all years after 1981, I earned at or near the wage base. In 2019, despite my age, I continue to work and pay into the system. So, because of the bend points in the calculation (reaching age 62 in 2019) were 90% of first $926 of Average Indexed Monthly Earnings (AIME), then 32% of next $5,583, then 15% of the excess over $5,583, my benefit is a much smaller percentage of my AIME than for most workers.

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    • Jack, I spent about 30 minutes doing some calculations on total Social Security FICA taxes paid since 1969 for the top earners. In 1969 total FICA tax = just $655 for the year. In 10 years total FICA tax paid = $11,271, In 20 years total FICA tax paid = $46,965, In 30 years total FICA tax paid = $118,259, In 40 years total FICA tax paid = $227,473 and at age 70, 50 years total FICA tax = $379,878. And the employer paid half of the tax. There is no guaranty that if an employer did not have to match the employee FICA tax that they would include the savings in additional income to the employee.

      A single person that paid the max and retired at age 70 in 2018 would get $3,698 per month = $44,367 per year, if they lived just 15 years to age 84 they would get a total of $665,505.

      A married couple with spousal benefit would get $5,547 per month = $66,564 per year and a total of $998,460 by age 84.

      Most people think they paid in way more FICA tax than they really paid and do not consider that they only paid half. Also, what would a disability insurance policy cost over a 50 year period that would pay out what Social Security disability pays. Or what would a life insurance policy cost in premiums for 50 years, that would pay out $665,505 or $998,460 at age 84.

      How many taxes do we pay in a lifetime and never see anything close to what Social Security returns to everyone who qualifies for survivor, disability, spousal or retirement benefits.

      Sure some make out better than others. If my wife and I live to age 84 we will get a total of $365,424 in SS benefits. I sure would like to get the $998,460 and had the max income that a top earner had during the last 50 years, but that is not how things worked out.

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      • I agree. If you ignore the time value of money, that a dollar in 2033 is the same as a dollar in 1969… or if you discount the employer’s contribution. But on a present value basis, I will leave a lot of money behind to other SS beneficiaries.

        If you look at actuarial studies, you’ll see that most Millenials have a negative rate of return on SS

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    • Jack, How can you figure rate of return??? Without knowing the cost of a disability policy premium for x years or what survivor benefits or spousal benefits would cost if you had to purchase an annuity to provide that income. It is impossible to figure.

      In my case I come out much better under the Social Security System and I think most people do. Total SS FICA taxes paid for my 27 years of employment = $35,082, inflation adjusted to 2018 dollars = $86,000. Most of the money was paid the last 10 years of employment. I will get the $86,000 back in 60 months. Since I worked low wage jobs starting at $1.85 per hour and ending at $12.26 per hour there is no way I would of been able to save anything, if there was not a FICA tax taken out of my pay.

      Social Security has done exactly what it was intended to do, provide a basic income for all workers in retirement, keeping many out of poverty. Providing disability and survivor benefits to millions of families over the last 79 years.

      Jack, if you live long enough, I believe you will get all your FICA taxes back and more. There is no other thing we pay taxes for that we get that kind of return. And there is no real way to figure what you would have IF there was another option, because there is not.

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      • I was covered for disability coverage in almost 47 of my 50 years of employment to date. A good group disability policy will have a rate of about .007% of covered compensation. If I became disabled, the benefit from my policy would offset any social security disability benefit I received – so little value there. And no, the earnings on the accumulated assets, at a 6% return exceed the monthly benefit I will receive – I never get to the principal (the contributions I made, my employer made, and the earnings on those monies up to the date (sometime in the future) when I commence benefits.

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      • With respect to survivor benefits, think of it as term life plus savings. The greatest need for survivor benefits was before I reached age 50, where the average group term life insurance premium was less than .10/$1,000/month. Again, I know the rates of return simply because they are history. I can’t predict future rates, so if there is a fallacy in my Social Security calculations, it is from projecting a rate of return for the future.

        But, as bad a deal as Social Security provided, Medicare is an even bigger loser for me.

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  2. What I get from Bob “Warren Buffett” is that 1) he has invested his own money into some other retirement vehicle such as a 401K or other stock fund and is now independently rich and does not need Social Security. 2) that he has gotten better returns than the market for the last 31 years by 50% more than I did. 3) he never actually saved a dime for his own retirement otherwise he would know his figures do not work out unless he was on the ground floor of Apple, Amazon, or MicroSoft. He also did all his investing totally risk free. I also wonder what Bob thinks “bank account” interest was until about 18 months ago for the past decade.

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  3. The thing most people do not factor in figuring SS benefits, is that SS provides more than just retirement benefits. It provides survivor benefits for spouse and children and disability benefits too. Also, there is no guaranty that if an employer did not have to match the employee FICA tax that they would include the savings in additional income to the employee. Bob’s brother should of purchased a life insurance policy, if he wanted to leave extra money for his family, separate from any SS benefit, that you may never collect.

    My wife, who never worked outside the home and I took our SS retirement benefit at 62 for personal reasons. I have life insurance that will provide way more to my spouse, tax free, than waiting for the bigger SS check at Full Retirement Age of 66 and 4 months. We will collect $68,488 not counting colas before FRA. It would take until age 77 to get the $68,488 back in the bigger FRA benefit amount. Each person has to weight the pros and cons of when to take SS benefits, each situation is different.

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