Why Social Security doesn’t work

I know some of you know this in the theoretical, but sometimes seeing the actual numbers helps.

The average person earns 1.2 million dollars in the course of their life (if you only have a High School Diploma) in current dollars. Assuming they go to work at 19 that averages out to $25,000 a year, probably making somewhere near $40,000 at retirement assuming an average raise of 1% per year (it’s more because I’m giving a you a 1% raise in real dollars), I’m being generous. In reality you’d probably end up with a much higher number.

At present FICA is 6.25%. Currently it has been lowered but let’s assume that the average 6.2% will hold (if I accounted with the lower FICA this would have even a more outrageous ending).

So, over a lifetime the average high school graduate will contribute $74,400 and their employer will contribute $74,400 for a total of $148,800. (If you’re self employed you get to put up all of it.)

If they retire at 67 they get full benefits (if they retire before this it is reduced benefits, but actually those reduced benefits end up costing more in the long run).

If they’re making $40,000 (not an outrageous sum) at full retirement their benefits are going to be about $1,300 a month.

The average life expectancy is currently 78.3.

So, retiring at 67 means they’ll be collecting benefits for 11 years 4 months.
1300 x 11.3×12=$176,280. That’s right, they will draw $176,280 from social security if they retire today and live 11.3 more years (but as we know life expectancy keeps going up so in 11 years the life expectancy will probably be around 79 or 80 which only makes this next paragraph even worse).

$176,280 is $27,480 more than the $148,800 they and their employer put in. We all knew that everyone gets more than they put in, but now you know by how much. Times every person who retires. Yes social security is currently funded ….because it’s stealing from the rest of us. But this Ponzi scheme has to go.

Oh and let’s ask what you could have done with $148,000 more in your lifetime…oh maybe buy a house and have enough credit that you didn’t need to get a subprime loan. Maybe pay for your kids to go to college. Or if we cut that in half and didn’t just force that money out of your employer’s bank account maybe they could have hired someone else (or maybe a dozen other employees)…or maybe take care of your parent (what an idea)…or how about even saving for retirement. Even the compound interest of a basic CD would yield a lot more that measly 27K overage. A myriad of things could be done which would have made the economy infinitely more healthy.

But no. We had to have an entitlement program. Great plan.  And it only gets worse the more you make.

Now we can cut benefits or we can raise the retirement age or we can tell people that if they’re not a certain again, tough they’re just not getting anything they put into this failing system (or all of the above).  But the fact remains that more is coming out than is going in and that makes this nothing more than an elaborate pyramid scheme that needs to be stopped.

Oh and we didn’t even talk about the obscene cost of Medicaid and Medicare

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Filed under Budget, Capitalism, Debt, Economics, Government is useless, Long Term Thinking, Social Security, Welfare

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