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.