There are all kinds of ideas to save Social Security. My question is: Is it worth saving? I read recently the average Social Security check is $1,072 per month. Let’s look at someone 18 years old, making minimum wage, ($7.25 per hour) and use current, constant, dollars (assuming no increases in wages). Assuming 2080 hours per year, he will earn $15,080 annually. The 6.2 percent taken for Social Security amounts to $935 annually. The employer matches that amount for a total $1,870 annually paid into Social Security per year. Now, the question is... What rate of return would he need on the money paid into Social Security for 48 years to collect $1,072 per month? Answer: 4.57 percent.
This number assumes he doesn’t have to work until age 70 (as is being suggested) which would require a return of less than 4 percent annually to collect $1,072 per month. And remember, someone earning minimum wage won’t collect the average Social Security check, so the numbers are actually worse.
Now let’s assume he could earn an average 10 percent (the stock market average over the long term) on the $1,870 figure. The total is $2,123,321. With a sum like that he could buy a 30-year treasury bond (assuming 4 percent) and collect $7,077 per month, quite a lot better than the $1,072 figure.
Every time I debate the idea of private accounts vs. Social Security with those who want to save Social Security, they always raise the (ridiculous) question: “What if they invest in another Enron?” The answer is easy: Don’t invest in any individual stock, invest in the market. I can understand why politicians want to save Social Security, it’s a cash cow for them to buy votes with (with empty promises). But for the life of me, I can’t figure out why individuals want to keep throwing hard-earned money into this ponzi-scheme. At least we should have the option of private accounts instead of Social Security.
Jim Galpin, Chandler
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