Economists Eugene Steuerle and Stephanie Rennane of the Urban Institute have crunched numbers from the Social Security Administration and found some interesting facts.
Consider an average-wage, two-earner couple together earning $89,000 a year. Upon retiring in 2011, they will have paid $614,000 in Social Security taxes, and can expect to collect $555,000 in benefits. They will have paid about 10 percent more into the system than they're likely to get back.
What a great deal! Makes the 0.02% interest I’m earning on my savings account look pretty darn good!
In addition, according to the administrators who run Social Security, the system will go into the red in 2014, and we will have to start paying the difference between what is coming in and what is going out in benefits from a federal treasury that is already running annual trillion dollar deficits as far as the eye can see.
Another interesting fact to consider, according to Yahoo Finance, from 1950 - 2009, the S & P 500 grew at an average annual rate of 7%. This is with dividends reinvested, and is adjusted for inflation.
The Social security tax rate that is removed from your paycheck each pay period is 6.2% of your gross income. For the average wage couple mentioned above, that is $5,518 removed each year.
Using a compounding calculator, if the couple works for 40 years, starting at age 25 and retiring at age 65, put $5,518 in the first year and every year after that, and simply invested that in the S&P 500 index, (plain vanilla, nothing fancy), you would have a retirement account worth $1,262,326. That seems a lot better than $555,000.
I remember when Bush suggested we start with just an option of moving 5% of our Social Security payments over to private accounts, he was beaten until he was bloody by the AARP and the media to the point that he had to withdraw his suggestion.
Of course we have to phase the privatization of Social Security in over a very long time to take care of the seniors who are already on it, but can anyone explain to me why we just don’t get this done?
