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SS v/s private investment
Old 01-24-2008, 06:50 PM   #1
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SS v/s private investment

Hello,

I noticed a little item in my last SS statement that tells me how much I've contributed to date to SS.

Assuming I ER this year, I took that number (I did not take employer contributions into account), a modest 7% annual return and calculated what that would grow to by the time I was 70 the year I would begin taking SS.

I then went to immediateannuities.com and found out what an immediate annuity with that final number calculated above (bought today) for a 70 year old would yield.

I was surprised that the monthly payout from the annuity was only $200 greater than what I'm supposed to get from SS. The annuity would be taxed and is not adjusted for inflation.

Obviously, when you take employer contributions into account, the difference would be much higher. And if I were to contribute to SS till 70 the difference would be higher still.

Anyone else want to do this calculation and confirm/refute what I found?

Full disclosure:
a) There is a flaw in my calculations above. I took my current contribution as the starting point. I should have calculated what the returns would be based on the date each contribution was made. But I'm too lazy to figure that out.
b) I am a supporter of SS as a safety net in old age, so I'm fine with the returns for me personally being less than what I could probably manage on my own.
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Old 01-24-2008, 11:21 PM   #2
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Why would you not take your employers contributions into account when making a calculation like that? Social Security took the employers contributions into account when they calculate your estimated benefit. If you don't use the employer contributions, then the exercise and results are kinda missing the point in my opinion...apples to apples kinda thing.
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Old 01-25-2008, 08:05 AM   #3
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Of course this has no bearing on the efficiency or effectiveness of SS. Your payments are also supporting low income people who receive larger (proportional to investment) payments, the disabled, survivors, spouses, etc -- all with a full COLA. The real question is whether you believe everyone should be on their own to sink or swim or we should have some minimal safety net. Looking at the homeless problems in our cities I hate to think what it would be like without SS.
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Old 01-25-2008, 11:07 AM   #4
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SS also pays disability, right? So part of the payback equation is not just our retirement payments, but the cost of similar disability insurance.

NOSSCR Online - Questions about Social Security Disability

Which is all pretty meaningless, since SS payments just go into the general fund, but you do need to be paying SS for a time to qualify for SS disability.

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Considering inflation over 20 years
Old 01-25-2008, 11:50 AM   #5
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Considering inflation over 20 years

Doubles the amount a COLA'ed pension is worth over a fixed one.
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Old 01-25-2008, 04:15 PM   #6
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ikubak,
Good points.
I was just surprised that my calculations came so close to what SS would give back based on MY contribution. I expected it to be much, much less because it is after all, a social program.
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Old 01-25-2008, 04:46 PM   #7
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You have to remember that your employer's contribution is really YOUR contribution too. If employers didn't have to pay that tax for hiring people, wages would be higher, or good would be cheaper, or corporate profits would be higher. All of those things would likely benefit you.

Social Security is the price we pay for living in a country full of financial illiterates.

Quote:
Originally Posted by walkinwood View Post
ikubak,
Good points.
I was just surprised that my calculations came so close to what SS would give back based on MY contribution. I expected it to be much, much less because it is after all, a social program.
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Old 01-25-2008, 05:20 PM   #8
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Quote:
Originally Posted by Hamlet View Post

Social Security is the price we pay for living in a country full of financial illiterates.

I thought it was state lotteries. Perhaps it is both.
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