I have always kept it technology related here, since I have a personal site for anyone who might care to read about my opinions on life in general. There's something going on right now is worthy of a cross-post, and a lot more than that too: Social Security reform. Our President visited our state this week to talk about Social Security reform. He's been taking a lot of heat for this, and of course it is political suicide (or heroism?) , which is why its an issue to look at when you are not up for re-election.
My personal philisophy is largely objectivist which puts me at odds with at least half the population right off the bat. There is one principal that I would think anyone can identify with (even if only in their most hidden thoughts) and that is self interest. Social Security hurts almost everyone, from the lowest wage earner to the wealthiest industrialist. I say almost everyone because there is some value in taking care of those who are unable to work.
I've always known Social Security would not be enought to live on after retirement, but when I started getting statements from the govermnment as to what I could expect, it was still shocking. My monthly check from Uncle Sam will likely not be enough to pay the cable bill in terms of 2040 dollars. Yet we pay roughly 7.5% (with medicare, etc) payroll tax on the first $90,000 we make. Our employer matches this, so lets use 15% as a nice round number for argument's sake. Let's say I make $20,000 per year, and I work for 40 years. Using this calculator from the SSA I can expect a yearly payout of ~ $9,400. Ouch! By compairson:
- My and my employer's payroll taxes over that working career could be invested at Zero percent interest, in my mattress, to get a payout of $6,000 per year.
- In a no-risk 5% money market, my money alone (not counting my employer's payroll tax) would come out to be about $9,500 per year.
- A conservative money market at an average 7% rate of return for just my payroll tax would give me $16,400 per year.
- Now let's get crazy: if my mutual fund return averaged 7.5% and I was able to invest both my payroll tax and my employer's payroll tax, my nest egg could pay me $37,700 per year.
I am assuming 20 years of retirement payout here. I also ran the numbers (in Excel and the Social Security Administration web site) for a $90,000 salary. The fact of the matter is, unless you are one of the few who are disabled and cannot work, Social Security is a ripoff. I am not advocating leaving those people high and dry either, so settle down.
Now, in addition to you getting a terrible rate of return on the 15% of your salary that goes to SS, consider that there are also quite a few popular ways to save additional money for retirement. 401k, company pensions, Roth IRA, etc.
What is my point? My point is that in terms of the total cost of employing you and your salary, you and others on your behalf are probably spending a grand total of 23% or more of that salary on your retirement; to retire with a similar standard of living you probably only need 7.5% of that money.
A lot of other things could be done with a lot of money that is going into a large, inefficient system that is periodically raided by Congress. My vote is give it back to people to spend. Social Security reform is good.