Privatizing Social Security
Privatizing Social Security
As I watch the government trying to gain more and more control of private businesses, I began thinking of Social Security. I see how well the government has run that and wonder why people want to see us become a Socialist country.
Just for fun I decided to run some numbers to see if maybe I have been misled about the government's inability to run Social Security. Here is what I did. I took someone born in 1944. This person began working at age 18 in 1962. He only made minimum wage for his entire lifetime and retired in 2009 at the age of 65.
I went to http://www.dol.gov/ to find the minimum wage for each year. I used a 40 hour work week. I then inserted his annual earnings into the Social Security calculator found at http://www.ssa.gov/cgi-bin/benefit6.cgi to see what his benefits were. According to the Social Security calculator, at age 64 years and 8 months he would receive $846 per month. His monthly salary prior to retirement would be $1,257 so he would be getting about 67% of his pay upon retirement.
I then went to a Social Security Administration site (which is now inactive) to find the Social Security tax rates each year he worked. Those rate began at 1% and rose to 6.20% in 2009. Instead of paying the government that amount, I had him investing that into mutual funds that averaged 11.4% growth. I made a spreadsheet that showed 7 out of 10 years with growth and 3 years with losses included back-to-back years with losses each decade. At the end of 2009 he had $184,492 in his mutual fund. If this fund is averaging 11.4% growth, he could take out 7% each year and leave 4.4% to cover for inflation. $184,492 times 7% is $12,914 per year or $1,076 per month. He would be receiving 85% of his pay upon retirement. Had this man been able to invest in mutual funds instead of letting the government take his money, he would have had $230 per month more!
These figures are based on someone never making more than minimum wage throughout their lifetime. If they had made more, the numbers would have been more in favor of investing in mutual funds.
I know there may be some critics that don't think you can earn 11.4% in mutual funds. I suggest you check out my article on mutual funds which is linked below of this article.
Privatizing Social Security is something that Americans should be requesting, it is in our best interest financially.
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Comments
Your conclusion fails to take into account several considerations. Social Security was conceived as a social insurance program, not an investment program. It provides benefits for orphans, widows and people who are totally and permanently disabled. Social Security will turn out to be a great "investment" for someone who works until age 65 and lives until age 90. Not so for someone who dies the day after he retires at age 65.
Social Security has succeeded in its goal of preventing abject poverty and malnutrition in old age and to reduce the number of people begging on the streets. It was never intended to provide for more than a small makeup of wages earned before retirement. It has served as only one leg of the retirement income stool, the other two being defined benefit pensions and personal savings. Defined benefit pensions are disappearing for nearly everyone. That leaves Social Security and personal savings and investment. 401ks and IRAs are left to fill the gap left by the disappearance of defined benefit pensions. They should be strengthened in a number of ways to encourage greater participation and return on participants' savings.
Finally, your estimate of returns for mutual funds is considerably too high for several reasons--loads and commissions, high operating and transaction costs, and taxes on dividends and capital gains. Most investment counselors' expectations for mutual fund returns are more like 7-8 percent.
The public interest would best be served by preserving and strengthening Social Security and improving and incentivizing IRAs and 401k plans.
- AUTHOR
Thanks Carl for the comment on my Privatizing Social Security article.
I am sorry to hear that you have so little confidence in the American people.
Anyone that has a high school education should be smart enough to make basic investments in mutual funds. There are also friends and relatives that can help guide them. Most likely someone, perhaps a local newspaper, will list some of the better mutual funds. So it should be pretty easy to figure out how to invest and get more money than what the government will give you.
For those who do not have the education or common sense to invest, charities can help take care of them.
I have much more confidence in people and even businesses than I do in government. I think if people get to keep more of their money, they will give more to charities. I also think the same about businesses. It is good advertising when a business helps people.
Remember as you slam Wall Street, you are slamming ANYONE that has investments in stocks, bonds or mutual funds because they are also a part of Wall Street.
Art,
what happens to those without common sense?or to those who do not invest in your so called "PROVEN" mutual funds?
oh yeah! they don't eat ! or better yet they apply for SSI benefits based on income making it another expense on all of us just for the benefit of wall street...
I'm sorry I am quite aware the government is very inadequate in their investments...but I have a bit more trust in Uncle Sam than Wall Street!
- AUTHOR
Thanks for the comment Patricia.
You have to be smart enough to invest in PROVEN Mutual Funds, which is fairly easy to figure out for anyone with some common sense. There are many PROVEN Mutual Funds that have been around for 20, 30, 40 even 50 years or more that have averaged a 10-12% return. I think I would much rather invest in PROVEN Mutual Funds than let the government handle my money. We all know how "efficient" the government is at handling things.
I don't have a problem with giving the option to people to either stay in the government run program or go into a private plan. As I explained in my article, you will be making more money privately. Plus when you die your beneficiaries will get all of the money in your Mutual Funds as opposed to the $255 Social Security death benefit.
so who do you want managing your retirement? "Golden Sacks" or Bernie Madoff? Hello, were you asleep for the last two years when personal retirement plans lost over 80% of their value? You want auction-rate securities, credit default swaps? Do you know how many mutual funds bit the dust and how many strange new "investment" creatures have since invaded Wall Street? Social Security was desinged to keep Wall Street from sucking up everything the public has worked for, something they seem to do on a regular basis. I think the ideas here is so that in our golden years we can be assured of at least being able to eat! Trust your retirement to Wall Street? You are truly, sadly very naive. If you think WS give a damn about you, you are certifiable. How about the mutual funds that invested in Enron? Hey, if you want to shovel your money to them, be my guest but hands of SS.
- AUTHOR
Thanks for the comment issues veritas.
I wrote some hubs on SS and pretty much FDR got what he wanted at our expense. There is no end to contribution to SS and only a limited paltry return when or if you receive it.
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