Friday, June 21, 2013

Guest Post by Crabby Old Man


There has been commentary about what a great deal Social Security recipients are getting for the Social Security Taxes they and their employers contributed.

I will use my own case as an example and let the readers decide for themselves.

I started to receive $2,103.00 per month in January 2010 at age 66. My life expectancy was age 83, or another 17 years at the time.

I paid a total of $99,366.00 in Social Security Taxes over the 50 year period from 1959 through 2009. My employers had to match that same amount, so the total interest free loan to the government was twice what I paid or $198,732.00. If we continue to ignore the time value of money (interest), that pays for about eight years of my pension payments.

WHAT IF MINE AND MY EMPLOYER’S MONEY HAD BEEN PAID INTO A 401K PLAN OR SOMETHING SIMILAR INSTEAD?

I used the return rates for the Dow (an average rate of 7.12%) and applied them to what I and my employers had paid and came up with $757, 572.19!!!!

Some comparisons to my $2,103.00 per month:

$757,572.19 divided by $2,103.00 = 360 months or 30 years.

7.12% of $757,572.19 is $53, 939.14 annually or $4,494.43 per month leaving my estate with the original $757,572.19

4.42% (7.12% less 2.7% inflation rate) of $757,572.19 is $33,484.69 annually or $2,790.39 per month leaving my estate with the original $757,572.19 plus growth at the assumed inflation rate.

$757,572.19 amortized at 7.12% over 17 years = $6,413.50 per month.

$757,572.19 amortized at 7.12% over 50 years = $4,627.93 per month.

I think that it should be pretty clear that Social Security has been a bad deal. The differences are so great that it is not worth the time to factor in the nickel/dime cost of living adjustments.



Here are my sources:

My personal information is from the information I received from the Social Security administration.

The interest calculations come from Microsoft Excel interest functions and my HP12C Financial Calculator.

Source Dow Returns --- http://www.forecast-chart.com/historical-dow-industrial.html

Mortality tables --- http://www.ssa.gov/oact/STATS/table4c6.html

Inflation rate: http://www.usinflationcalculator.com/inflation/current-inflation-rates/

2.7 average rate 1999-2012

The details of my interest calculations are in the following table:

27 comments:

SoLow said...

Well Crabby, I hate to state the obvious but at least you're getting something. I'm 42 and I'm STILL paying into the SS system. Can anyone do the calculations on what I'm going to get out of it???

ZERO. Calculate that.

Bram said...

SoLow - You will get a couple grand a month don't worry. Of course, after another 20 years of money printing, that will get you a couple loaves of bread.

Foxy Wizard said...

Thanks for doing the math on that issue, Crabby. I am 58, and have paid in all my life. not sure how much. SoLow's comment is dead on. I'm not sure those my age will get anything meaningful, and those much younger will probably get nothing. numstam

Haverwilde said...

Crabby is a year older than I am. And I have the opposite view. I began paying in to SS in 1959 also. But by 1975, I knew that this was just a beg Ponzi scheme. It was a tax like any tax, and was being used for government expenses. I never planned on having to survive on SS. Now as the country goes progressively more insolvent it is time recognize that it is another welfare payment, and another entitlement that needs to be reexamined and probably have a means testing for the payment.

CrabbyOldMan said...

Haverwilde, I never planned to live just on Social Security either. I contributed the full allowable amount to 401K plans starting in the spring of 1971. I also have three meager private pensions.
My whole point is that everyone, particularly the government, would have been better off had we all been required to contribute to something like a 401K plan rather than a fraudulent "insurance" plan.
I agree that Social Security would have been just another entitlement if it had not been both compulsory and fraudulent.

free0352 said...

I figured this out when I was in college and have presented very similar numbers to liberals many times.

They called me a fascist baby killer and said I wanted to eat babies. Liberalism is indeed a faith belief.

Zelda said...

This is just depressing. And there is nothing that can be done about it because the other side refuses to debate. Any discussion of reform is shut down with hysterical rants about you wanting old people to die in their own excrement, so in spite of the absolute failure and the fact that the entire system is going to implode, there will be no reform.

Get ready to put some pioneer spirit to the test.

CrabbyOldMan said...

Free0352, I have known that Social Security was horseshit for decades too.
This is the first time I actually did the numbers because I thought it a waste of time.

Ron said...

Crabby is 100% on the money. We need to take a step back and analyze how and why government develops certain programs. At the time Social Security was crafted, most people died before they collected or before they collect too much of it. And . . . the government got to keep YOUR MONEY after you died. Later on, the government SPENT the Social Security receipts and left IOUs. Now that Social Security payouts exceed the Payroll Tax intake well . . . NOW politicians have to pay attention and take action. Crabby is also correct with his 401k example. And it's a conservative example. I have first hand experience because I set up my company's 401k plan. But here's the kicker. The government won't support a 401k type plan to "replace" Social Security precisely because of your example. YOU CREATED WEALTH. Wealth that the government 1) can't spend and 2) Your heirs get to inherit the money, not the government.

And the other part of the WEALTH CREATED BY YOU = a degree of freedom. You need government less. Well, we can't allow that. Can we?

Anonymous said...

I find it amazing when pure unadultered logic leaves the libs absolutely speechless. Thanks Crabby for the enjoyable sound of crickets.

Rickvid in Seattle said...

When Bush wanted to allow people to voluntarily set aside a small fraction of their SS payments into a private savings fund, the left lied to the max, screaming that the eeeevvviiilll Bu$hitler wanted to "privatize" social security and murder old people. The left knew they were lying. Media knew, too. But they, of course, just kept it up.
For the pummeling they got in this fight, tho, I blame Bush. He took on a 3rd rail topic without the needed preliminaries, then, when the expected temper tantrums of the lying left came up, the administration did pretty much nothing to defend their position.
When my father died, I called SS to let them know and see what other benefit may be due him. The very terse and snarky reply was, "He don't have nothin' more comin' 'cause he's dead." But, his 401k and other investments went into his estate. This is the scam of SS. Your money that you paid in never belonged to you. It was always a means of transferring your money into the pockets of others who did nothing to earn it, unlike, say, the folks who build roads, cops and firefighters, the military, or even politicians. And, SS is no longer a retirement operation but a massive slush fund for disability, a category of society that has bloomed like toxic red tide under Obama. SS is a good tool for pols to buy votes, and further disable society as a group of free people, creating instead a cabal of helpless fops and entitled twits.

CrabbyOldMan said...

He took on a 3rd rail topic without the needed preliminaries...
EXACTLY!
And, SS is no longer a retirement operation but a massive slush fund for disability, a category of society that has bloomed like toxic red tide under Obama. SS is a good tool for pols to buy votes and has been for many decades.

Jpck20 said...

Free... But you do want to eat babies!!!

Rickvid in Seattle said...

Mmmmmm, baaaabies!

free0352 said...

Only if I get to abort them first.

Steve said...

Crabby-

Excellent post. I wish that Ala's blog had higher page views; this should be required reading in every economic class that espouses a liberal economic model as a "savior" of the American Way.

I also find it interesting that, 3 days later, we don't have a troll on this particular thread topic. Hmmm...

-- Steve

free0352 said...

I began collecting social security in September. I continue working and invest the FICA proceeds in an upstart business. But, I have always considered that the money I paid in since I was 15 working at the soda counter at the drug store paid for my MOM AND DAD...and my son is paying for me. I would LOVE to see us get out of this mess. Freemom (Free does NOT eat babies)

free0352 said...

oh dear, Free is signed in and Freemom is posting....

Foxy Wizard said...

Hi, Freemom.

Foxy Wizard said...

Free eats trolls.

free0352 said...

Buuuurrrrrrp.

What?

Nate said...

COM wants all of the benefits of having his money in the market with none of the risk.

CrabbyOldMan said...

No Nit, CrabbyOldMan's figures INCLUDE the "risks" in that the return figures reflect both the gain and loss years over the preceeding 50 years.
Is THAT the only answer your handlers could find for you?

Nate said...

COM, Your ROI would have been significantly worse 5 years ago when the market was less than half of what it is now. Had the taxpayer not bailed out the banks, it would have been a lot lot worse.

Also, what would have happened had you had a significant illness that required to retire 15 years ago? SS would have given reasonable benefits while your market based approach wouldn't have. Regardless SS is intended to be an insurance policy as much as a retirement plan. Private insurance policies, like SS don't invest in the market directly and instead look for safer fixed income investments that typically pay less than stock markets. The reasoning is that a large payout event may also crush the market, causing liquidity problems for the insurer.

I applaud your analysis -- Americans should be looking at the ROI for SS, and we should be considering other options (like your index fund based plan). However such analysis can't ignore some of the less happy outcomes.

CrabbyOldMan said...

Nit!
Goddammit, can't you READ?

Freemom said...

The premise to social security was that we would die within 5 years or so once we started colleting it. With modern medicine, we are not dying...hence the solution to fix that: OBAMACARE! (would you like the red pill or the blue one?)

Foxy Wizard said...

I agree with that statement, Freemom. That is why raising the retirement age down the road makes sense. I thought Paul Ryan's plan was pretty good. Then came the advertisement of him pushing granny off the cliff, and it was all over. who in their right mind would try to do the right thing in politics today? The left (Soros) owns the media, and he certainly is not in favor of fixing the mess. He wants to destroy America.