Bad Investment

Turns out Social Security may not only be an unwise investment for new and future retirees, it may not be an investment at all. A recent Associated Press report noted that today’s new retirees are part of the first generation that has paid more into the Social Security system than they will actually receive after retirement.

One such example from a 2011 Urban Institute study was given in the AP article:

“A married couple retiring last year after both spouses earned average lifetime wages paid about $598,000 in Social Security taxes during their careers. They can expect to collect about $556,000 in benefits, if the man lives to 82 and the woman lives to 85 …”

Though Medicare has come back into the spotlight with the media attention toward Mitt Romney’s new VP pick and his now infamous proposal of remaking the single-payer healthcare system into a “premium support” system (something Romney also supports), reform of the other big entitlement elephant in the room, Social Security, has rarely been discussed since the failed attempts by the last presidential administration to partially “privatize” it.

Perhaps Social Security reform deserves new attention. After all, the program’s own trustees state in their latest annual report that after 2033, “tax income would be sufficient to pay only about three-quarters of scheduled benefits…”  At that point, one could just as well literally hide their money under their mattress and guarantee a more secure retirement. Assuming they remember where they hid it, they at least would not lose any of their money. Not to even mention the problem of inflation.

The problem with the current system is fairly simple. Its failure to continue to yield any reasonable return makes it more of a piggy bank than an investment.

The number of those receiving Social Security benefits is expected to significantly increase as many in the baby-boom generation continue to retire. In 1940, when monthly benefits first started paying out, there were around 42 workers per retiree; now there are only around three. Also, people are living longer. That means they collect benefits longer, further putting a strain on the system’s finances.

In short, it’s a Ponzi scheme in most aspects of the word, except that, unlike with a Ponzi scheme, you have to participate in Social Security. And did I mention the Supreme Court has ruled you don’t even have a right to your benefits?

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One Response to Bad Investment

  1. Sheryl says:

    Great info, Adam, proves once again our hope is not in the government.

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