Social Security, a Lousy Deal
Way back at its founding, FDR talked about adding a private account component to Social Security. Today, George Bush is again proposing a private account component to Social Security. One reason for this is easy to see. Private accounts, when they are a financially conservative mix of stocks and bonds, yield much higher rates of returns than the government pay-as-you-go system.
So what if, say in 1950, the U.S. had switched to a fully private system? This would have been much easier to do back then. Social Security taxes in 1950 were just 3% per year compared to 12.4% today.
The Heritage Foundation has a Social Security calculator that tells you what you would have received if you retired today assuming that we had a system of personal Retirement Savings Accounts (RSAs), rather than pay-as-you-go Social Security. To see this for different income levels, I plugged values into the calculator and created the table below. Do you think that people retiring this year are getting a good deal for all the Social Security taxes that they paid for the last 45 years?
One thing interesting in this table is how the lowest income Americans make out. Consider the person that retired making just $10/hour. The calculator assumes that you therefore had a low income all of your life. But over 45 years - you still paid a lot of Social Security taxes. And with compound interest, this creates a nice lump sum at retirement to buy an annuity. In fact, at retirement you could have received $2531 a month for the rest of your life! Instead, you are only going to receive $995 month.
The great irony here is that the political left, who claim to represent the poor, would have opposed private accounts in 1950 just like they oppose them today. It seems that liberals are more caught up ideology (and of course opposing George Bush) than they are in finding the solution that is best for low income Americans.
April 10th, 2005 at 11:55 am
[...] le, if the US had converted to a system of private accounts in say 1950, retirees would be living much better today. This entry was posted on Sunday, April 10th, 200 [...]
April 18th, 2005 at 8:12 pm
[...] ears. This is a fact of history! Thus, retirement savings accounts are low risk yet give higher returns than Social Security. Retirement savings accounts are lower risk than Social Security regarding givi [...]
April 29th, 2005 at 7:15 pm
[...] rn. Some generations get a much better deal than others (although, overall everyone gets a lousy deal with Social Security). Social Security and Medicare are set to explode in terms of revenues needed whe [...]
May 5th, 2005 at 7:25 pm
[...] will be a system built on personal ownership rather than the nanny state. And we will have more money in retirement for both living expenses and health care, not less as many try to argue today. [...]
May 7th, 2005 at 8:48 pm
[...] cornerstone of any proposal to reform the system. You can see the Ponzi scheme at work here and here. This entry was posted on Saturday, May 7th, 2005 at 8:39 pm [...]
May 8th, 2005 at 1:26 pm
[...] ong term average dropped somewhat over the next 15 years, Chileans will still be getting a much better deal than American workers. In 2020, Chileans should be proud. They were the first in the western hem [...]
May 13th, 2005 at 11:42 am
[...] of these calculators. I used the Heritage Foundation’s calculator to come up with this table (which I re-inserted at the bottom of this post). If you are curious, go to different websites and try t [...]
May 25th, 2005 at 10:39 pm
[...] se progress and is working against the interests of the poor and working class as I showed here. This entry was posted on Wednesday, May 25th, 2005 at 10:26 pm [...]
June 17th, 2005 at 12:20 pm
[...] m against the conservatives. This makes sense, because after all the working class are the ones helped the most. (Question: aren’t Democrats supposed to be one’s on the side of the working class [...]
September 18th, 2005 at 12:42 pm
[...] ested their Social Security taxes in stock market index funds, they would be retiring with far more than Social Security pays today. The taxes collected and the stock market returns of index funds in the pa [...]
April 5th, 2009 at 1:08 pm
[...] is sad really that choice #5 was not began years ago. For example, what if we had privatized Social Security in 1950? (And hey, this almost happened.) When I started the [...]