After some calculations, I wonder why we should pay into the social security system. The maximum yearly SS benefit is only $27,876 for a 2010 FICA salary of $106,800. If we had invested 7% of salary with a 6% return for the last 30 years, the amount would have been $570,752 now (based on initial salary of $46,800 @3% growth to yield $106,800 after 30 years). Instead of using the $570,752, we are at the mercy of the government to provide $27,876 for the first year of retirement + inflation adjustment for the rest. For the next 20 years, the total disbursement would be $749,039 based on an inflation rate of 3%, while our $570,752 would have grown to $1,726,867 @6% return.
Obviously, the assumption of salary growth makes a difference. If we assumed the salary growth is 5%, the amount would be about $400K (instead of $571K) after 30 years. In another 20 years, the amount would rise to about $1.3 mil @6% (as opposed to $1.7mil).
i dont know if your numbers are right but a COLAed $27,876/yr represents a SWR of 4.88% (that is COLAed) based on a portfolio value of $570,752, not too shabby