Rachel Greszler, a policy analyst at the Heritage Foundation, offers
alternative outcomes of a variety of scenarios - people with various personal financial situations and how they fare with Social Security vis-a-vis personal savings:
While virtually all workers—across income levels, both genders, and generations—would be far better off with personal savings than Social Security, younger workers get the worst deal from the government program.
The average young male worker is virtually guaranteed a negative rate of return from Social Security. Take these hypothetical examples:
Marc Perez is 23 years old and earns an average income of $60,006 per year. He will pay $547,088 in Social Security taxes (excluding disability insurance taxes) throughout his lifetime. In return, he will receive a monthly benefit of $2,209 in retirement.
If he instead invested that same amount—$547,088—in a conservative mix of stocks and bonds, he would accumulate more than $1.5 million in a retirement account and could use that to purchase a lifetime annuity that would pay him $6,185 per month, or nearly three times what Social Security will provide.
Even lower-income earners, like Ashley Martin, who generally receives higher returns from Social Security, would be better off saving and investing in their own personal retirement accounts.
Martin is also 23 and makes $19,768 per year. She will pay an estimated $119,426 in Social Security taxes toward a program that will provide her with a $902 monthly benefit in retirement.
If she instead invested that same amount—$119,426—in her own retirement account, she would accumulate $354,731 in savings. That would be enough to purchase an annuity that would provide her with $1,262 per month, or 40 percent more than Social Security can provide.
Given the preceding examples, it will come as no surprise that high-income earners like Courtney Jones get the worst deal from Social Security.
However, if she invested that $860,050 in her own retirement account, she would accumulate more than $2.8 million in retirement savings—an amount that could provide her with a monthly annuity of $10,132, or almost four times what Social Security can provide.
If workers did not use their personal savings to purchase annuities, but instead drew down on them as needed in retirement, they would be able to leave sizable bequests to their heirs.
In contrast, workers who die before reaching Social Security’s retirement age or shortly thereafter often receive little to nothing in return for their hundreds of thousands of dollars in payroll taxes.
The ability to leave bequests would be especially meaningful for lower-income workers. Not only do lower-income workers tend to have lower life expectancies, and therefore receive less in Social Security benefits than higher-income counterparts, but their families do not receive the same leg up from bequests that middle- and upper-income families often receive from their elders to pay for a grandchild’s education or to purchase a home.
After payroll taxes and other levies, there simply isn’t much left for lower-income workers to save for the benefit of their heirs.
A young male earning only half the average wage would have enough in a personal account to provide the exact same income that Social Security provides, and to also leave $479,000 to his heirs if he died at the average life-expectancy age of 76. Even if he were to live to age 90, he would have $270,000 left in savings to leave to his heirs.
The Framers did not intend for government to be used to address the two given conditions of individual life: getting sick and aging.
If we could trust the investment predictions and absent the myopic corporate vipers (they only have eyes for them) and their "fees" and guarantee that there will be no more great depressions or great recessions, and have us all getting schooled in personal finance, what a wonderful country (if not world) this would be, right? Much of the world is already wonderful with much cushier paths to senescence.
ReplyDelete"Up until the Reagan ’80s, traditional pensions with guaranteed benefit levels were the dominant tool for providing workers with future security. For the first three decades of the Cold War, the share of workers with access to a traditional pension plan expanded steadily. But from 1985 to the beginning of the Great Recession, U.S. companies eliminated a combined 84,350 separate pension-based retirement systems for workers. The reversal exactly mirrors the rise of 401(k)s and other tax-code-based vehicles by which individuals save and invest rather than accruing a guaranteed retirement income for years of service. After World War II, in the heart of the era to which Trump’s political brand hearkens back, payroll taxes on workers and employers provided about one dollar of every nine the government collected. Corporate taxes contributed more than one dollar in four to federal coffers. By the height of the Great Recession, those proportions had more than flipped. As the government made it easier and easier for corporations to avoid tax, workers made up the difference — causing payroll taxes to rise to 36 percent and corporate taxes to fall to 12 percent of annual federal collection in 2008."
https://thinkprogress.org/dont-reform-the-401k-kill-it-f60e68dddcd0/
This article makes low corporate taxes out to be a bad thing.
ReplyDeleteBy the way, individual tax rates ought to come down some more, too.
Oh, and so should government spending - first and foremost on the program that is the subject of this post.
Low corporate taxes might not be a bad thing if the deficit were addressed first. One thing for sure is that the military industrial complex and all milking off that cash cow are gonna get fat on dairy.
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteWe're not exceptional at all when it comes to the elderly but I guess that too makes bloggie proud and of course claims of income inequality make him hurl:
ReplyDelete"This gets to the United States's big weakness when it comes to the elderly: the ever-present danger of poverty. Because of high income inequality and weaker social safety nets, the United States ranks only 36th in the world for "income security" among older citizens. By this measure, the United States ranks behind virtually all of the developed world and most of Eastern Europe. The United States ranks 24th globally on health of the elderly, which the report concludes is likely a product of economic inequality. It warns, "lifetime inequalities in areas such as wealth, healthcare and educational attainment play a key role in differing outcomes at older ages" and in the United States's relatively low score on these metrics."
Private pensions are in trouble too. Perhaps the author of your link has succumbed to "greedy assumptions."
ReplyDelete"There are two glaring reasons for our current pension crisis: poor investment decisions and greedy assumptions. Pension actuaries assume that contributions to the plan will grow by investing the principal in stocks, bonds, mutual funds, hedge funds and private equity investments. Just like retirement planning for a household, the prudent investor assumes a conservative expected growth rate. But, almost universally, the big pension plans assumed more aggressive rates—because that permits them to commit less of their own cash to the plans. The institutions on which financial laypeople have relied to help solidify their retirements simply have fallen prey to the same behavioral biases that affect each of us, individually, in investing.
Wishful thinking led to unacceptably high growth assumptions and therefore lower-than-necessary contributions. Then, highfalutin’ investment managers made poor portfolio decisions that were further compounded by failed attempts to bail out their bad choices."
https://www.forbes.com/sites/timmaurer/2016/12/09/american-pension-crisis-how-we-got-here/#4a70fef66241
That's why it's better to manage one's own portfolio - with the help of a good advisor, of course, someone who will get the right balance of moderate and aggressive funds for one's particular circumstances.
ReplyDeleteThere will be winners, there will be losses. Should old age be treated like a lottery or a precious family and societal resource? Government is society which a wise man once said you could judge by the way they treat their elderly.
ReplyDeleteAnd I say all this cause I'm fast approaching elderly.
DeleteGovernment is most definitely not society. Two distinct things.
ReplyDeleteOld age should be treated however individuals wish to treat it.
You're full of shoulds. A d the Supreme Court has disagreed with you.
ReplyDeleteIt appears one must enlist in our armed forces to have that government is society security blanket. Deafening cheer from the peanut gallery here, thank you for your service, let's throw more of our hard earned money (at gunpoint as bloggie is so fond of adding) at you. The military is well known to take quite good care of its elderly beginning at age 38 for an enlistee out of high school.
ReplyDeleteCan't have too many shoulds.
ReplyDeleteWell, of course, the government takes good care of military personnel -even after their service. They defend our freedom and our borders. Their situation is special in comparison with the rest of us.