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SS Exercise
Old 06-20-2012, 08:02 AM   #1
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SS Exercise

Next month I will receive my first ss check for $1800 (at 62). When I plug that amount into Immediate Annuities it says I would need a sum of ~ $331k. On my last ss statement it says that taxes paid by me and employer over 44 year history was $250k. Over 44 years that would indicate a rate of return of 1% or less? If I take the $250k and spread it evenly over 44 years ($470/mo) at 4% I would accumulate $661k, or about double the $331k.

Is that difference the expense of the other ss benefits - disablility, ssi, survivor benefits? Or just faulty math on my part?
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Old 06-20-2012, 08:16 AM   #2
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Is that difference the expense of the other ss benefits - disablility, ssi, survivor benefits? Or just faulty math on my part?
No, it's just that our government can't keep their greedy hands off our money.
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Old 06-20-2012, 08:30 AM   #3
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Don't forget that SS payments are adjusted for inflation - something that most fixed SPIA's are not.

Also (and this is just my personal feeling), disregard what your employer paid in. A lot of folks contend that you would have received a higher salary if they didn't have to pay the tax. I don't think that most (or any) employer would be willing to give up any $$$ unless they had to. That should bump up your estimated rate of return.
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Old 06-20-2012, 08:30 AM   #4
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Next month I will receive my first ss check for $1800 (at 62). When I plug that amount into Immediate Annuities it says I would need a sum of ~ $331k.
Remember SS is COLA'd - the 331K number is for a non-COLA'd $1800 per month.
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Old 06-20-2012, 08:33 AM   #5
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? If I take the $250k and spread it evenly over 44 years ($470/mo) at 4% I would accumulate $661k, or about double the $331k.
Is that the way it was earned and paid in, or were the payments made beginning 44 years ago lower, and worth less as a result?
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Old 06-20-2012, 08:33 AM   #6
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I do not consider the "SS taxes" I paid as an investment. SS is an insurance benefit for which the "SS taxes" are the premiums.

The retirement insurance benefit is based on your wage history, the average wage history and loosely on CPI, not hypothetical investment returns. The only investing done by the SS administration with "SS Tax" receipts is to buy special Treasury bonds that have provided interest to pay current bills over the years.

It is an interesting exercise to compare a hypothetical sequence where your "SS taxes" are invested. I have done such an exercise and the likelihood of being able to invest those taxes from my work record AND be able to pay all the possible SS benefits available to me, spouse, ex-spouse, children, etc., is very remote.

I suppose in your exercise you could consider the difference as the cost of paying other possible benefits plus your Old-Age benefit.
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Old 06-20-2012, 08:38 AM   #7
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I do not consider the "SS taxes" I paid as an investment. SS is an insurance benefit for which the "SS taxes" are the premiums.
Or a school tax that you pay for the benefit of all, regardless if you have children that use the "services".

While you're paying the tax, it goes to others for their SS income. Of course, I won't venture to say where the $$$ will come from for your SS payments, once you file (too political )...
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Old 06-20-2012, 09:48 AM   #8
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Hold off taking SS another 5 years......if you live a long time, you'll get a much better return on your investment. If you take it at 62.....enjoy it! Good investment or not, what choice do we have? And, for many, they wouldn't have anything cause they spend everything they get and would have already p......sed it away.
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Old 06-20-2012, 09:49 AM   #9
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Or a school tax that you pay for the benefit of all, regardless if you have childern that use the "services".

While you're paying the tax, it goes to others for their SS income. Of course, I won't say where the $$$ will come from for your SS payments, once you file (too political )...
+1

Well said. For The Greater Good because the alternative is much much worse!
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Old 06-20-2012, 10:31 AM   #10
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Originally Posted by Idnar7 View Post
Next month I will receive my first ss check for $1800 (at 62). When I plug that amount into Immediate Annuities it says I would need a sum of ~ $331k. On my last ss statement it says that taxes paid by me and employer over 44 year history was $250k. Over 44 years that would indicate a rate of return of 1% or less? If I take the $250k and spread it evenly over 44 years ($470/mo) at 4% I would accumulate $661k, or about double the $331k.

Is that difference the expense of the other ss benefits - disablility, ssi, survivor benefits? Or just faulty math on my part?
First, congratulations and I hope you enjoy your lifetime benefits. You earned this IMO.

Regarding the math, I personally wouldn't bother myself with this stuff. It was never a choice for most of us unless we decided to go into business illegally and never pay the SS but just invest it. Think of those wonderful stretches of stocks markets in the 1980's and 1990's. Boy what a stash. On the other hand, there was the 1987 crash, the 1998 Asian crisis, the last 2 deep declines in the 2000's, etc. Nice that we didn't have to put all our retirement money on the line in those times.

When I was paying into SS it seemed remote. Now it's a monthly pleasure. Better to have the SS system in this country then having to deal with all the consequences of people who never planned and now have only SS to fall back on. Many of the ones who resent SS do not really need the system because they are the resourceful ones.
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Old 06-20-2012, 11:28 AM   #11
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Originally Posted by Idnar7 View Post
Over 44 years that would indicate a rate of return of 1% or less? If I take the $250k and spread it evenly over 44 years ($470/mo) at 4% I would accumulate $661k, or about double the $331k.
Is that difference the expense of the other ss benefits - disablility, ssi, survivor benefits? Or just faulty math on my part?
What would you do with the results of the analysis?

Your Social Security taxes didn't go into a 401(k) or an IRA or any other sort of individual account. They disappeared into some black box, out of which you're now hoping to coax some sort of output. I'm not sure that the output has any correlation to the input. Not only that, but you're probably going to pay taxes on the output.

Would you advise people to invest differently? Would you ask SS for a refund?
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Old 06-20-2012, 11:33 AM   #12
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Sorry, I didn't mean my post as a complaint or political statement. Just thought it was interesting and wanted to pass along in case anyone wanted to look at their own numbers. I guess I was looking at it through the Bush plan for investment outside ss. Thanks for all the interesting comments.
MichaelB - this was just a quick and simple average. You are correct in that first year was under $1k and last year was over 100k. Just a simple 20 minute exercise. All in all I am happy with my $1800/mo and also the reason I took early (limited longevity).
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Old 06-20-2012, 12:51 PM   #13
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.Start political statement

I think the Bush plan to revise SS went south along with the stock market of 2008-2009. People need a safety net as they do not all invest patiently or wisely.

.End political statement

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Old 06-20-2012, 01:24 PM   #14
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Keep in mind that not *all* of your SS contributions are going for old age pensions. Some go to survivor benefits, spousal benefits, benefits for dependent children, disability and other benefits that aren't directly going into the SS check of the person who earned the income.
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Old 06-20-2012, 03:28 PM   #15
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I suspect that you would probably need twice the premium to replicate an inflation adjusted annuity, so the "return" is a lot better than your calculations suggest. Not that it means anything BTW - it is what it is.
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