One man's retirement math: Social Security wins

[CountAllVotes]

<<< At the heart of President Bush's plan to sell Social Security private accounts is a simple notion: You're always better off investing your retirement money than letting the government do it.
By doing it yourself, you can stow some money in the stock market, and over the long run will get a better return on that investment than today's Social Security system offers.

The idea is broadly accepted. That's why the administration's plan to partially privatize the system sounds appealing to many. But that better return won't always happen. >>>

<<< He recorded all the payroll taxes he paid into the system (including the matching amount from his employer), tracked down the return the Social Security Trust Fund earned for each of the 45 years, and then compared the result with what he would have gotten had he been able to invest the same amount of payroll tax money over the same period in the Dow Jones Industrial Average (including dividends).

To his surprise, the Social Security investment won out: $261,372 versus $255,499, a difference of $5,873.

It's an astonishing finding. The DJIA represents blue-chip stocks. Social Security invests in US Treasury bonds. Over long periods of time, stocks have consistently outperformed bonds. So, you would think that Logue's theoretical stock investments from 1950 to 1994 would have surely outpaced the return on government bonds. >>>

http://www.csmonitor.com/2004/1227/p01s03-cogn.html

[rkc3]

1. Sure SS won out, but how many stock brokers starved as a result of

taxpayers not being able to invest in their own retirement?

[olacan]

2. I am

not ready to take the figures of one person as the answer to this issue. I would would like to see the numbers he used so I can better understand his result. Also what about the city in TX. that withdrew from SS years ago, and created a private fund. It is suppose to be doing far batter than SS. I have seen several stories on it or is it an urban legend.
I am too old to participate in the plans out forth so far, but I do like the idea of being able to pass the funds to my children.
reaching for my flame retardant undies, OK go ahead flame away.

[papau]

6. Private fund created in up Market looks good - if in down market looks bad

It is called risk.

From a starting in 1950 to date - the risk did not pay off.

[Chef]

3. SS

One of the reasons his return totals more is the one half of it contributed by the employer which is OK. But, when you look at how log the money will last, it will take 13.61 years before he would have been paid back the total contribution, or 6.81 years until all the money he put in would theoretically be exhausted at a simple $1,600 per month. Increase due to SS colas would reduce the time frame, and "interest on the remaining balance would lengthen it. SS would continue to pay him after whatever contributions were paid in were exhausted, but his Bush account would be out of money causing him to live on a subway grate or in his car while eating cat food for the rest of his miserable life. Oh joy.

[ohtransplant]

4. Their (*'s) proposals obviously ignore the risk of investment.

Many people on SS now, get their "investment" back relatively quickly because FICA taxes were so much lower for much of their working lives.

It really doesn't work that way. We don't each have an account with our investment accruing earnings. Today's earners support today's SS recipients. (Sorry - not trying to preach.)

Social Security may need some help but I pray the American people don't fall for this shell game. There are many, better and less painful answers than what *'s leading up to.

The best way to defeat or modify these proposals is for Americans to contact their reps (of both parties) early,often, and in big numbers. Obviously there's a lot at stake.

[papau]

5. If Equity inv needed, Trust fund can buy equities. The fake "return"

on your investment calculation that ignores the annual interest payout required for the $2 Trillion borrowing that sets up the private accounts is all that the advocates of privatization have left to point to as a "positive" - and it is a positive only if you allow them to lie and pretend the taxpayers will not be paying extra taxes to fund the extra interest payment required each year on the $2 trillion "transition cost" borrowing.

But it is interesting to see that the worker's analysis that compares theoretical stock returns with what the Social Security Trust Fund earned shows that investing in equities is not a guarantee of a great return.

But Bush/GOP/media liars always return to "what will you get from the system" - and always pretend SS stands alone and is not part of the total Federal government expense and taxation system. Indeed the payroll tax is one of our 2 income taxes - only it is the one that Bush never wants to cut despite it being in "surplus" now and for next 15 years.

But just wait for the Media to sell the Bush investment account approach because "a typical worker can expect to earn 4.6 percent a year (after administrative costs) on a diversified portfolio of stocks and bonds and only about 2 percent or less from Social Security, according to federal estimates reported by Michael Tanner of the Cato Institute" - what BULL! - as if there is a free lunch and the interest on the transition cost is never paid!

Of course the "return" on their Social Security contributions depends largely on how long they live - and out living your account means you starve to death at age 80 - but that is not important to Bush.

As the article notes - the Thatcher revolution (moving average retirement income from being received 60% via a gov program like Soc Sec to only 40% today, while pushing private accounts to make up the difference), has "so many retirees are doing so poorly at this moment that a commission warned this fall that widespread poverty among the elderly may be returning, which could require massive new government spending."

Meanwhile we trade the present Social Security system's minuscule expense compared with the size of the benefits provided, for the major expenses associated with private accounts.

God forbid we look at the administrative problems/expenses - not included by CATO - of payroll deduction and timely investment of those monies as (per study by the Congressional Research Service- CRS) 650,000 employers go out of business or start new businesses each year and more than 4 million employers have 10 or fewer employees, meaning they often having record-keeping problems and errors, and as our 12 million to 15 million individuals who are self-employed are told to send money directly to a private account.