I am in total agreement with you. Freedom of each persons pursuit of happiness is a beautiful thing to have. I am now reading the book "WORLD MADE BY HAND. This illustrates your point even more since the characters have even less material goods and no services, and despite the opposition from the greedy and "WIN/LOSE mentality, the "WIN/WIN CITIZENS who care about their neighbors are making positive contributions.
Hi John, I have done a similar analysis of the social security side but not the invest instead side, but your work does look solid. The only flaw is the assumption is that the average person I know, after living in and having friends in 5 different states, would not have invested the extra funds from not paying SS withholding. I would estimate that only 10% on people I know would have invested the savings. The rest would have spent it on some type of wasting asset, like a car or a real "TOY". Probably half the people I know took SS early at age 62. Just look how regulation has changed the price of cars. In 1969, I paid $2,900 cash for a new 1969 Chevelle. Crazy.
You are assuredly correct about what people would do with their money. But it's their money and government isn't their parent. Bit by bit the foolishness and dependency mentality would be replaced by wise investing. But there would still be plenty of unwise. However, so much more wealth would end up existing that there would be more charity (voluntary charity that is) available to help out the unwise. If we were to believe that the paternalism of social security were good, should we not forcibly transfer to Social Security 50% of all the income of the wise and unwise alike, to it in order to further protect the unwise from their bad decisions? I would think not. If we go black nd white, I go with eliminating social security. But that's not going to happen, so the whole argument is not going to have any effect, except, perhaps, have a few people remember that the next progressive stupidity that is proposed probably won't work out the way they hope..
hard to compare, isn't it. Different oppressive tax regimes, different baseline wealth to extract, different enforced retirement ages, different levels of family support structure, different minimum wages and hours worked, different income tax systems, different VATs. Touch to compare with all those variables.
Based on false assumptions. Social Security income is used for much more than age-based retirement payments. Your calculations overlook a major part of Social Security, the INSURANCE component; the payments to orphans and widows for workers who have died, disability retirement for workers who can no longer work, and more. However, the employee used in the example can still save his own money over and above Social Security and create his own nest egg. That's personal responsibility.
Good point on the disability. Doesn't change the overall argument, but changes the numbers a bit. Disability component is 1.8% out of the 12.4% stolen.
Using only the 10.6% retirement share in place of 12.4% scales the stock balances down to about 85.5% of my calculations. At 11.8% average return, the age 67 balance would fall from $3,933,632 to $3,362,600, and at 8% average return, from $1,242,379 to $1,062,000. The multiple of the Social Security check would be about 7.3× and 1.6×. The early-retirement ages would barely move.
The employee making minimum wage for his entire working life having 12.4% forcibly sucked out of him by Social Security is going to have a lot more difficulty saving and buying private insurance (including disability) than if he were not being robbed every month by the government. Disability insurance is replacable in the private market. The government is so lousy at providing it that it is highly abused, lots of people feast at the trough, and the "customers" of the program have to be forced to be customers.
I wrote almost the same article in college almost 40 years ago.
My recommendation was for the government to help my generation ween off the SS apocalypse. Make a small declining contribution to the kitty for previous generations and all for tax free self funding.
Our benevolent leaders gave us IRAs, but left the SS scam in place.
Your point about living off an annuity AND leaving a fortune to your heirs is something almost no one understands…
Great article. I'm too old to take advantage of that plan. But what about my 25-year-old nephew? Maybe I recommend that he opt out of social security and invest that money instead. Wait... Can you opt out of social security? What do you have to become a sovereign citizen? Or maybe his employer would get confused and refuse to work with him on it.
Below 6.25% annual nominal return, social security would win, assuming this lowest paid man lives until age 85. In this scenario, 6.25% nominal return matches social security payout through age 85. Account empties at 85.
7.05% nominal would match social security payout to age 95, account empties at 95.
Of course buying an annuity would be what people would do to protect against living a long life!
There are a bunch of scenarios. Wealthy people get screwed a lot more by Social Security.
Although there is a way to lose, most likely if the stock market performs that badly, the social security system will be failing too.
But remember that the 11% or so returns average will more than likely become higher if Social security wasn't sucking so much of the investment dollars out of the system.
None of it really matters. We aren't getting social security revoked. But maybe a few people will consider that socialist programs suck, regardless of what their intended goal is..
My AI, alter.systems (the red-pilled AI) is estimating average life expectancy for a 20 year old of 79.25 averaging men and women.
Given that life expectancy, I'm curious what ROI would be the breakeven between investing your 'Socialist Insecurity' tax on your own vs. living on SS tax money.
The other factor in favor of this thought experiment is how much wages would go up if employers weren't burdened with the tax, and all the payroll tax hassles. Lots of businesses plan to avoid growing beyond the individual or the family so as to not get ensnared.
the lower the life expectancy, the lower the percentage stock market return that is needed to beat out social security. It can be said that social security is particularly harmful to black men, who pay into the system the same way everyone else does, but have the lowest life expectancy. If you die at age 67, you get just the $255, nothing else. (although, if married, your wife likely will get some of the benefits that you didn't live long enough to receive.
And Reagan and Volcker made sure that CPI (and therefore COLA, which affected not just SS but pensions and paychecks going forward) would never again reflect actual inflation.
I’m old enough to remember multiple years of double digit salary increases in the late 80s and early 90s.
Because the union pensions and contracts all had COLA provisions, and COLA was tied to CPI. And, employers needed to maintain the delta between mgt and non mgt, hence mgt also received the big increases.
right. There is always risk. But even in the scenarios where the market blows out 50% in the last decade, it will end up far higher than social security would ever get to be... in income and in balance. And imagine how a free market would help to ameliorate the concerns. There would be competitive insurance plans to counter late market collapse, families at different stages of their investment life could agree to help each other out if markets went down at bad times. And it's not as if social security is without risk. So there is no perfect solution, but Social Security is one of the worst for anyone who held a job. As for those who don't hold down jobs, and don't earn money, then social security is a sort of welfare.
Right. It's all imaginary anyway. Social security will only get more parasitic, not less. But theoretically, the 12.4% could get stuck in a Roth-like IRA and not be taxable ever. But, yes, of course, miserably, a chunk of the nominal increase in dollar valuation is simply inflation, and the bastards will tax us on the inflation as well as actual increase in value...
The point of my article is perhaps to get a few of those Republicans who receive Social Security to realize that it is a deal with the devil and fight against it instead of always saying "I am owed it". , even while they accept their monthly payments from the original deal. Because they are owed it. But that one person is owed it doesn't mean that the money should be stolen from some innocent other person to pay it..
Oh I agree with you . In Australia we have pension of course but a compulsory system called Superannuation. That is a similar rort and now the gov is viewing it as a “ national asset” and want to compel funds to invest in gov programs. You can also self manage which is what I do but again last year they tried to introduce tax on unrealised gains. That was dropped after outrage but they will bring it back. For now it’s 30% flat capital gain on any investment. Which means you carry all the risk if your investment goes south but they take 30% of any gains if it goes well.
$4537.00 a month? Thats news to me. I could live like a human being on that. I don't know ANYONE who collects that much. Maybe half of that is the max I've seen. That SPAM gets old. My Momma who is 100 years old, gets maybe $1000.00 a month with TWO Masters degrees and a Lifetime of hard work and raised 7 children. Yes, and worked full time her entire life. We have to chip in on her care home----$7000.00 a month and it's hardly fancy. I've got a TBI and a Spinal Cord Injury. Who will care for me? No one. It's been a hell of a ride.
that $4537/month is 47 years in the future, nominal dollars. The hypothesis was a 20 year old now, being able to go the Social Security route, or the invest in stock market route... 4537 wouldn't be worth more than what your momma gets now, in real terms, I expect...
I am in total agreement with you. Freedom of each persons pursuit of happiness is a beautiful thing to have. I am now reading the book "WORLD MADE BY HAND. This illustrates your point even more since the characters have even less material goods and no services, and despite the opposition from the greedy and "WIN/LOSE mentality, the "WIN/WIN CITIZENS who care about their neighbors are making positive contributions.
Hi John, I have done a similar analysis of the social security side but not the invest instead side, but your work does look solid. The only flaw is the assumption is that the average person I know, after living in and having friends in 5 different states, would not have invested the extra funds from not paying SS withholding. I would estimate that only 10% on people I know would have invested the savings. The rest would have spent it on some type of wasting asset, like a car or a real "TOY". Probably half the people I know took SS early at age 62. Just look how regulation has changed the price of cars. In 1969, I paid $2,900 cash for a new 1969 Chevelle. Crazy.
John C.
You are assuredly correct about what people would do with their money. But it's their money and government isn't their parent. Bit by bit the foolishness and dependency mentality would be replaced by wise investing. But there would still be plenty of unwise. However, so much more wealth would end up existing that there would be more charity (voluntary charity that is) available to help out the unwise. If we were to believe that the paternalism of social security were good, should we not forcibly transfer to Social Security 50% of all the income of the wise and unwise alike, to it in order to further protect the unwise from their bad decisions? I would think not. If we go black nd white, I go with eliminating social security. But that's not going to happen, so the whole argument is not going to have any effect, except, perhaps, have a few people remember that the next progressive stupidity that is proposed probably won't work out the way they hope..
the rest of the world, not under social security‘s thumb, should have a great retirement then. how do they compare to US retirements?
hard to compare, isn't it. Different oppressive tax regimes, different baseline wealth to extract, different enforced retirement ages, different levels of family support structure, different minimum wages and hours worked, different income tax systems, different VATs. Touch to compare with all those variables.
Based on false assumptions. Social Security income is used for much more than age-based retirement payments. Your calculations overlook a major part of Social Security, the INSURANCE component; the payments to orphans and widows for workers who have died, disability retirement for workers who can no longer work, and more. However, the employee used in the example can still save his own money over and above Social Security and create his own nest egg. That's personal responsibility.
Good point on the disability. Doesn't change the overall argument, but changes the numbers a bit. Disability component is 1.8% out of the 12.4% stolen.
Using only the 10.6% retirement share in place of 12.4% scales the stock balances down to about 85.5% of my calculations. At 11.8% average return, the age 67 balance would fall from $3,933,632 to $3,362,600, and at 8% average return, from $1,242,379 to $1,062,000. The multiple of the Social Security check would be about 7.3× and 1.6×. The early-retirement ages would barely move.
The employee making minimum wage for his entire working life having 12.4% forcibly sucked out of him by Social Security is going to have a lot more difficulty saving and buying private insurance (including disability) than if he were not being robbed every month by the government. Disability insurance is replacable in the private market. The government is so lousy at providing it that it is highly abused, lots of people feast at the trough, and the "customers" of the program have to be forced to be customers.
You are basically describing the Australian Superannuation system.
socialists tend to think the same way in any hemisphere, I suppose.
I wrote almost the same article in college almost 40 years ago.
My recommendation was for the government to help my generation ween off the SS apocalypse. Make a small declining contribution to the kitty for previous generations and all for tax free self funding.
Our benevolent leaders gave us IRAs, but left the SS scam in place.
Your point about living off an annuity AND leaving a fortune to your heirs is something almost no one understands…
Great article. I'm too old to take advantage of that plan. But what about my 25-year-old nephew? Maybe I recommend that he opt out of social security and invest that money instead. Wait... Can you opt out of social security? What do you have to become a sovereign citizen? Or maybe his employer would get confused and refuse to work with him on it.
He can join the Amish.
He can become a Minister in a church that has religious objection to insurance.
He can be a government employee in certain state and local government organizations that never joined Social Security.
He can give up his American citizenship...
Other than those routes, he will be forced to participate in this lousy stupid socialist system.
Could you run absolute worst case numbers, say a 4 or 5% return for a boring bond heavy portfolio with much less risk?
Below 6.25% annual nominal return, social security would win, assuming this lowest paid man lives until age 85. In this scenario, 6.25% nominal return matches social security payout through age 85. Account empties at 85.
7.05% nominal would match social security payout to age 95, account empties at 95.
Of course buying an annuity would be what people would do to protect against living a long life!
There are a bunch of scenarios. Wealthy people get screwed a lot more by Social Security.
Although there is a way to lose, most likely if the stock market performs that badly, the social security system will be failing too.
But remember that the 11% or so returns average will more than likely become higher if Social security wasn't sucking so much of the investment dollars out of the system.
None of it really matters. We aren't getting social security revoked. But maybe a few people will consider that socialist programs suck, regardless of what their intended goal is..
My AI, alter.systems (the red-pilled AI) is estimating average life expectancy for a 20 year old of 79.25 averaging men and women.
Given that life expectancy, I'm curious what ROI would be the breakeven between investing your 'Socialist Insecurity' tax on your own vs. living on SS tax money.
The other factor in favor of this thought experiment is how much wages would go up if employers weren't burdened with the tax, and all the payroll tax hassles. Lots of businesses plan to avoid growing beyond the individual or the family so as to not get ensnared.
the lower the life expectancy, the lower the percentage stock market return that is needed to beat out social security. It can be said that social security is particularly harmful to black men, who pay into the system the same way everyone else does, but have the lowest life expectancy. If you die at age 67, you get just the $255, nothing else. (although, if married, your wife likely will get some of the benefits that you didn't live long enough to receive.
Yeah ok. You ignore the timing issue. Getting a massive hole blown into your accumulated funds when the market crashes 50% and you’re 10
years away…
Your not wrong of course. But you paint the perfect scenario. And that’s not how life works.
And Reagan and Volcker made sure that CPI (and therefore COLA, which affected not just SS but pensions and paychecks going forward) would never again reflect actual inflation.
I’m old enough to remember multiple years of double digit salary increases in the late 80s and early 90s.
Because the union pensions and contracts all had COLA provisions, and COLA was tied to CPI. And, employers needed to maintain the delta between mgt and non mgt, hence mgt also received the big increases.
Ah, those were the days.
right. There is always risk. But even in the scenarios where the market blows out 50% in the last decade, it will end up far higher than social security would ever get to be... in income and in balance. And imagine how a free market would help to ameliorate the concerns. There would be competitive insurance plans to counter late market collapse, families at different stages of their investment life could agree to help each other out if markets went down at bad times. And it's not as if social security is without risk. So there is no perfect solution, but Social Security is one of the worst for anyone who held a job. As for those who don't hold down jobs, and don't earn money, then social security is a sort of welfare.
Won’t he be taxed on the gains along the way? Thus his own attempt at building wealth destroyed by the irs ?
Right. It's all imaginary anyway. Social security will only get more parasitic, not less. But theoretically, the 12.4% could get stuck in a Roth-like IRA and not be taxable ever. But, yes, of course, miserably, a chunk of the nominal increase in dollar valuation is simply inflation, and the bastards will tax us on the inflation as well as actual increase in value...
The point of my article is perhaps to get a few of those Republicans who receive Social Security to realize that it is a deal with the devil and fight against it instead of always saying "I am owed it". , even while they accept their monthly payments from the original deal. Because they are owed it. But that one person is owed it doesn't mean that the money should be stolen from some innocent other person to pay it..
Oh I agree with you . In Australia we have pension of course but a compulsory system called Superannuation. That is a similar rort and now the gov is viewing it as a “ national asset” and want to compel funds to invest in gov programs. You can also self manage which is what I do but again last year they tried to introduce tax on unrealised gains. That was dropped after outrage but they will bring it back. For now it’s 30% flat capital gain on any investment. Which means you carry all the risk if your investment goes south but they take 30% of any gains if it goes well.
I am sorry. We are all just milk cows. They find ways to get us coming and going.
Don’t be. Evil and greed always devour itself in the end.
$4537.00 a month? Thats news to me. I could live like a human being on that. I don't know ANYONE who collects that much. Maybe half of that is the max I've seen. That SPAM gets old. My Momma who is 100 years old, gets maybe $1000.00 a month with TWO Masters degrees and a Lifetime of hard work and raised 7 children. Yes, and worked full time her entire life. We have to chip in on her care home----$7000.00 a month and it's hardly fancy. I've got a TBI and a Spinal Cord Injury. Who will care for me? No one. It's been a hell of a ride.
that $4537/month is 47 years in the future, nominal dollars. The hypothesis was a 20 year old now, being able to go the Social Security route, or the invest in stock market route... 4537 wouldn't be worth more than what your momma gets now, in real terms, I expect...
Thanks Doc. I misunderstood.