Surprising Social Security Analysis

[Huston55]

Some Facts

This thread sparked my interest in the payments distributed/administered by the SSA (to include SSI). Just some brief googling on the intertubes; not extensive research but, gathered from reliable sources (SSA, SSI Annual Report, etc.). Figures are relatively recent (2015-2017)

- Annual Social Security Distribution:
- $885B
- 58M recipients
- Average Payment ~ $1350/mo
- Equates to ~5% GDP

- Annual SSI (Disabled, Blind & Aged) Distribution:
- $55B
- 8M recipients, >90% in disabled category (the vast majority under 65 yo)
- Average Payment = $532/mo
- Equates to ~0.3% GDP
- >80% from Federal (versus State) sources

FWIW, I’m in the same camp as “Independent.” I think I’ve received acceptable value from these programs, based on societal and personal benefit. YMMV

 

[karen1972]

I've done very similar calculations as I see those Memes on facebook that say, well I make $50K and if I invested...blah blah.. while you have to point out the fact, they didn't make $50K when they were 18, they likely had gaps in their income history, they likely wouldn't have 100% of it in S&P500, etc.

Of course I've also done the other calculations as I hit the 2nd bend curve at age 42, so after that your getting pennies on the dollar.. far less incentive to put into the system for the next 25 years when you know your not going to get anything more back.

My parents I think did very well with SS.
- My father turn 65 when my sister was 15, so he got SS checks for her for several years. Lets just say my sister was spoiled.
- My mother is 10 years younger than my father, so SS will likely have to pay out SS for many more years than average.

Its quirks like that in the system which makes it very hard to compare, but I think the overall system is decent. The only area which I may think about re-visiting is the married for 10 years clause as I'd prefer them to "credit" each spouse while they are married and once divorced stop crediting the other spouse so you only get a benefit for the years married vs. a lifetime.

 

[PoorOldCountryBoy]

So I guess I was bored with the Patriots domination of the Titans this evening and found myself looking at social security. I've heard it said that if you were able to invest the 12.4% on your own, you'd have much more money that the annuity payments provided from social security. So of course I had to see this for myself.

I started from 1982 and median income of $14,210 as published by tax return information for my particular state and county. Then I increased the income by inflation for an ending median income of $52,171 forty-five years later. Assuming the 12.4% was invested in the S&P 500 over those 45 years, you would end up with $881,548 after a total return of 7.34% over that time frame as published by the Schiller S&P calculator.

BTW, I did the same thing for medicare and ended with $206,168 if you got to invest the money yourself.

I then took that income history and input the numbers into ESPlanner to see how much social security you would get after working all those years. Turns out you would received $24,727, or 48.3% of your final annual income prior to collecting SS. Not too bad, and if you throw in a no-working spouse, household SS would be $37,091, or 72.3% of household income. Surprisingly high from what I was expecting for the median income case. I believe these percentages would be higher the lower you go on the income scale. And inversely proportional the higher your household income is.

There is no doubt that a 65 years old you could get very nice annuity with the $881,548; however, I realize that SS is much more than just a retirement supplement, but also provides disability and a significant death benefit along the way to retirement.

I would post the spreadsheet I made for this analysis, but my posting skills are limited.

Social security is not there to make you rich, it's there to make you not poor. And you're sharing that money with those less fortunate. Not to mention the investments (so called) are in government bonds, not the S&P.

 

[Independent]

The only area which I may think about re-visiting is the married for 10 years clause as I'd prefer them to "credit" each spouse while they are married and once divorced stop crediting the other spouse so you only get a benefit for the years married vs. a lifetime.

Yep, 10 years seems to arbitrary.

My thought is that while I'm working and married, my work history has an extra field that shows my spouse's earnings. When I retire, the SSA uses the average of those two numbers for that year. (My spouse, of course, has the same process.)

We each get our own benefit based on this averaged work history. No complications of spousal benefits or old age survivor benefits.

 

[athena53]

I've done very similar calculations as I see those Memes on facebook that say, well I make $50K and if I invested...blah blah.. while you have to point out the fact, they didn't make $50K when they were 18, they likely had gaps in their income history, they likely wouldn't have 100% of it in S&P500, etc.

Of course I've also done the other calculations as I hit the 2nd bend curve at age 42, so after that you're getting pennies on the dollar..

Yeah, the worst I saw was one that assumed 45 years of working, contributions invested at 8%, and they simply flattened out their total contributions and assumed a contribution of $4,500 per year starting 45 years ago. Except that the cap was very low back then and the contribution rates were lower, so nobody contributed that much (even with employer contribution) and only high earners contributed the max. I first hit the max in 1976 and combined employer plus employee contributions were $1,788. And working 45 years is rare, let alone working at the SS max every year. And you'll have less at the end if you contributions started out small and then increased over your career.

Sigh. We need more math literacy.