There is no such thing as a free lunch.

Why Social Security Sucks

Social Security seems like a good idea. You put some money into the system now and you get to take that money out when you retire, right? It’s called a tax, but it’s not really since you get that money back, right? It’s nice to have that big security blanket when you retire, isn’t it?

To me, it sounds too good to be true, so I decided to put some hypothetical numbers down in a spreadsheet. Take a look at it, and put in your own numbers. To calculate your Social Security benefits, you can either go to the estimator on the Social Security Website, or use this quicker one.

Right now, 12.4% of every working person’s paycheck goes to Social Security. That includes 6.2% taken directly out of your paycheck, and another 6.2% that is matched by your employer. So for my spreadsheet, I wanted to figure out how much money I could make if I could invest that 12.4% of my paycheck privately, rather than having the federal government take it. I assumed that I made $50,000 starting out of school at age 24, and would retire at age 65. I assumed my income would grow slightly faster than inflation (4% vs. 3.1%), and that I could invest that Social Security money at a 6% rate of return, which I think is fairly conservative. Change up the numbers if you like.

The results are astonishing. Without Social Security, at the age of 65 I would have about $2 million in my investment account, whereas with Social Security, I would start getting back $59,677 per year from the government. The government money does goes up with inflation every year. But even if I took that $59,677 (inflation-adjusted) out of my investment account every year, I would never run out of money. The investment account would actually grow each year by more than the Social Security benefit. By the age of 80 I would have almost $2.8 million in the account!

Social Security helped lift millions of the elderly out of poverty in the 1930s and the decades beyond. But the original tax rate was only 2% (1% each on the employer and employee). Since then it has ballooned to a whopping 12.4%. Instead of handing that money over to the federal government so they can waste it, I’d rather hold on to it – to do with as I please.


1 TheColonel { 09.09.08 at 1:35 pm }

There’s no historical facts about why SSI was started, no social impact of SSI. You could use that same shallow argument against ALL taxes for that matter. Why did you stop at SSI?

I think you are overlooking the “Insurance” part Social Security Insurance. No one knows what illness or tragedy is around the corning. I’m sure you have medical insurance, car insurance, FDIC on your bank accounts. Why? If you where permanently disabled today you would get more money out of SSI then you could of saved on your own.

2 msg { 09.09.08 at 2:52 pm }

I only stopped at the Social Security tax because I haven’t gotten to the other taxes yet :)

I alluded to a reason why Social Security was started. There was a big problem in the 1930s – nearly 50% of the elderly population was living in poverty. Social Security addressed this problem by lifting millions of the elderly out of poverty. I also pointed out that this was done with a 2% tax. It has since ballooned to a much higher number.

You’re right in that I did not mention the “insurance” part of it. I believe that Social Security also covers disability. Fair enough, but I contend that if the free market were allowed to operate, you could buy your own disability insurance on the cheap, and it would probably be better. Yes, I do have car insurance. I also know that in Massachusetts the rates are regulated by the government (though that’s starting to change), yet they are among the highest in the country. Most of the large insurance companies refused to even do business here. I don’t think that’s a coincidence. So I’m not disagreeing with some of the principles of Social Security – I just believe that (A) it is too expensive; (B) the government has screwed it up; (C) I should be allowed to opt out.

3 Jesse { 10.22.08 at 10:36 am }

You may appreciate this video, given your disdain for the Social Security System.

4 msg { 10.23.08 at 9:01 am }

Awesome! Love the video. I’ll be sure to pass it around.

5 Marie { 11.30.-1 at 12:00 am }

Yeah, yeah, another worthless tax to pay into. I get those statements in the mail from time to time letting me know how much Alpo I'll be able to afford once the baby boomers are done depleting the damn thing and there are just Generation Jones and Generations X and Y left to pick up the pieces.

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