Social Security, Retirement, and Congress

[aim-high]

Was playing around with my Social Security report. Here are some interesting facts.

If I stopped contributing today, at 62 I would get about $22,000 per year.

If I took my annual social security contributions and invested them in a 50/50 portfolio with market returns and only received a 3% return from now until 62 with no more contributions, at 62 I would get about $35,000 per year (assuming a 4% SWR) with a big pile likely left in the estate when I kicked the bucket.

If I were a congressperson for my career I'd be collecting a $139,000 pension at age 50!

 

[unno2002]

[FONT=&quot]For folks general info, to run a SS estimate calculation manually you need to determine your highest 35 years of earnings after adjusting those earnings for the various annual “indexing” factors that SS sets out?[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]The 2015 index info is at:[/FONT]
[FONT=&quot]Indexing Factors for Earnings[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]A “publication” (form) that can be used to estimate your SS benefit is at:[/FONT]
[FONT=&quot]http://www.ssa.gov/pubs/EN-05-10070-1953.pdf[/FONT]

[FONT=&quot][/FONT]


[FONT=&quot]When I retired, I went thru my records (packrat that I am) re Social Security (SS). During my total working years the amount that went into SS “on my behalf” was $193,818.88. I did a spreadsheet using the historical interest rates for plain old savings bonds. If, year by year, the money that went to the SS had instead gone into savings bonds and I held those bonds, at my ("early") retirement in 2012 there would have been $406,234.15[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]Per the SS statement, supposedly five years later at age 62 I could start to receive $1,692 per month. Of course, if the wife & I die before I turn 62, everything in SS goes “poof”. [/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]When I look at the amount flushed into the SS slush fund toilet, I see what could have been the 2012 CASH purchase of four decent small rental units… That would have immediately been paying significantly more than $1,692/month, essentially indefinitely, and leaving a valuable inheritance for the kid…[/FONT]

 

[Independent]

Was playing around with my Social Security report. Here are some interesting facts.

If I stopped contributing today, at 62 I would get about $22,000 per year.

If I took my annual social security contributions and invested them in a 50/50 portfolio with market returns and only received a 3% return from now until 62 with no more contributions, at 62 I would get about $35,000 per year (assuming a 4% SWR) with a big pile likely left in the estate when I kicked the bucket.

If I were a congressperson for my career I'd be collecting a $139,000 pension at age 50!

Any thread with "Congress" in the title will quickly attract Porky.

Yes, your SS taxes did not earn interest because they were used to pay your parents' and grandparents' benefits (or, at least, their generation's benefits).

For perfectly "average" American workers nearing retirement, if SS had not existed when they were working, they would not have invested their additional after-tax incomes because they would have spent that money supporting their parents directly. Or, if the parents had been wealthy enough to turn the money down, the workers would have inherited less.

Your benefit is entirely dependent on the willingness of future voters to continue to tax active workers in order to pay former workers' benefits.

If you want to play around with various "apparent return" calculations, I'd suggest this: Moneys Worth Ratios

If your benefit at 62 is $22,000, then you probably had average indexed annual earnings around $90,000. That's about twice the US median. Apparent returns are lower for higher income workers.

 

[longranger]

It is easy to drive yourself crazy if you hold the government to any rational standards of financial or moral behavior. If only the US government practiced LBYM. HAH to that!!!! We are the most frequent target the "Joneses of the world" try to keep up with. Stupid spending, corruption,unwise militarism, gross chest pounding showy excess in so many areas.

With even marginally responsible fiscal policies our tax revenues should be able to fund all the social programs and then some with a big sloppy surplus left over. Thats not to say I support all the entitlements but as long as the government is collecting enough to essentially fund a socialist contract with the people of this country we should get our moneys worth and little to no deficits to boot.

Do I want to stage a revolution or become an expatriate. Hell no. Even with our problems this is where I want to be so I feel fortunate.

 

[mickeyd]

As others have found out (or will find out), paying for SS for all those w**king years was a drag, but receiving a guaranteed income stream for life is a wonderful thing.

I wonder how many qualified SS recipients fail to apply for it?

 

[unno2002]

[FONT=&quot]If I could get a lump-sum of the “contributions” plus just savings bond interest, I’d waive the lifetime SS payment… Heck, at the moment I’m thinking I’d waive the lifetime SS payment for a check just covering all of the deposits, without any interest.[/FONT]

 

[heeyy_joe]

There's a reason they call it insurance. It's not an investment - period. Anyone that is permanently disabled sings a much different tune than this thread...

 

[meierlde]

You have just discovered the social security benefit formula it replaces (for 2014) 90% of the first 816 of average wages over 35 years, and between 817 and 4917 it replaces 32% and between 4917 and the tax limit it replaces 15% (these are average monthly earnings). At the second bend point the benefit is 2050 per month at full retirement ages, and if you had paid the max every year you would only get about 750 more per month. Thus the dirty little secret SS helps low wage earners more than high wage earners.

 

[stephenson]

Agree that mixing gov and personal financial calls doesn't make much sense and will lead many to anxiety

SS has long been used to pay for much of gov operations ...ability to do this runs out pretty soon due to demographic realities.

My fav cocktail party discussion centers on how one can finance wars without financing wars (no war taxes) ...no issue with realities of war, but not paying for it, knowing that it is over and above the basic requirements of gov ...and that (thankfully) the need comes and goes, doesn't make sense. Then, running a deficit, some component of which is related to a lack of war taxing ...the topic is serious only for a little while ...until the first pseudo political fundamentalist (sometimes related to religion, but in this case a more classic Constitutionalist fundamentalist). Sorry ...sometimes I just start giggling ...


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[Independent]

You have just discovered the social security benefit formula it replaces (for 2014) 90% of the first 816 of average wages over 35 years, and between 817 and 4917 it replaces 32% and between 4917 and the tax limit it replaces 15% (these are average monthly earnings). At the second bend point the benefit is 2050 per month at full retirement ages, and if you had paid the max every year you would only get about 750 more per month. Thus the dirty little secret SS helps low wage earners more than high wage earners

I did some Googling, but I couldn't find a poll to test the bold.

I was looking for something like:

If we compare Social Security taxes paid to Social Security benefits, which statement is most accurate?
A. Social Security is a better deal for low wage workers than for high wage workers.
B. Social Security is a better deal for high wage workers than for low wage workers.
C. Social Security provides about the same return to high and low wage workers.

Maybe someone else has a link.

 

[meierlde]

I did some Googling, but I couldn't find a poll to test the bold.

I was looking for something like:

If we compare Social Security taxes paid to Social Security benefits, which statement is most accurate?
A. Social Security is a better deal for low wage workers than for high wage workers.
B. Social Security is a better deal for high wage workers than for low wage workers.
C. Social Security provides about the same return to high and low wage workers.

Maybe someone else has a link.

No poll needed, if you just do the math a low wage earner gets a better return on her/his contributions than a high wage earner. But then also a one income couple gets a better return than a 2 income couple as well.

 

[Midpack]

Of course Soc Sec is a paygo system, so the comparisons are somewhat pointless. It was a better "investment" for the generations before us, but demographics have changed. Would you have wished your parents/grandparents had their contributions in the market too? Or you'd just like to change the rules now?

 

[CardsFan]

AH! The third rail of politics!
I must admit that I never bothered to fully understand SS until I started reading this site. I always knew it was a pay as you go system, but the details of how it was calculated was a mystery. Based on what I have read here, and investigated elsewhere, a few comments:

For those that advocate means testing, the system is already means tested twice. Once with bend points, and again with the tax treatment

As stated above, SS is insurance, not an investment, don't expect an even outcome for all.

As one of the fortunate people to max out, I like getting the pay raise, but wonder if it really would impact my lifestyle if the max was raised. I suspect it would not, and I would just adjust.

So, if increasing the max can bailout the system, it makes some sense. At the same time, maybe a new look at spousal benefits and all the options we have to game the system. Basically I think we need to ignore the politics, and look at the numbers.

But, of course, don't touch MY benefits!

 

[M Paquette]

Would you have wished your parents/grandparents had their contributions in the market too? Or you'd just like to change the rules now?

Heh, heh. Be careful what you wish for. You just might get it.

Mexico launched a fully privatized defined contribution plan in 1997, with people making contributions to a limited set of investment plans. The plans were limited to reduce the chance of people being talked into excessively risky investments with their retirement nest egg. This is similar to proposals floated from time to time for 'privatizing' the Social Security Retirement funds.

What happened?

​

Advertising and Competition in Privatized Social Security: The Case of Mexico

Hastings explains: "Fund managers charged an average load (a fee taken as a share of account contributions at the time of contribution) of 23 percent and an annual fee on assets under management of 0.63 percent, implying that a 100-peso deposit earning a 5 percent annual real return would only be worth 95.4 pesos after five years."

 

[Independent]

No poll needed, if you just do the math a low wage earner gets a better return on her/his contributions than a high wage earner. But then also a one income couple gets a better return than a 2 income couple as well.

I know that and you know that. The question is, do ordinary Americans know that? The post said that this was a "dirty little secret". I really wonder what most people think.

I found one poll that had 34% saying that SS taxes, including the employer's share, are between 10% and 15% of earnings.
That same poll had 73% saying that SS is primarily a pay-as-you-go system, but 23% think its an individual account system.
Those are both kind of discouraging, especially the second.

I wonder what percent would know that the monthly benefit formula favors low income workers.

http://www.washingtonpost.com/wp-srv/politics/polls/sspoll020905.pdf

 

[audreyh1]

The best thing you can do is retire early and stop earning wages so you don't have to pay into the system anymore - if that's what you want.

I don't sweat it at all. We're not going to get much. We both worked long enough to qualify, but not long enough to have a large payout even with several high earning years.

So we don't count it towards our future income.

But if something had happened to either of us in our working years it might have made a huge difference. And Dad gets a nice amount - we don't have to worry about him.

 

[mickeyd]

Thus the dirty little secret SS helps low wage earners more than high wage
earners.

Not much of a secret really. This was the real basis of the SS scheme that FDR came up with in the 1930's. Wealth redistribution disguised as a retirement plan.

 

[RobLJ]

No secret; It was designed pay as you go to keep grandma and grandpa from starving in their final years.
It is not a retirement "plan." It will help with retirement income, however. I don't begrudge my "contributions" to the plan--it supported my grandparents, parents, and nominal amount to my bed-ridden twin the last 20 years of his life. I got my "return."

 

[photoguy]

No poll needed, if you just do the math a low wage earner gets a better return on her/his contributions than a high wage earner.

Not if you FIRE early I was well over the contribution cap for most of my working career but since it's short I'm still under the second bend point.


If the second AIME bend point is roughly at 5k, SS contributions capped at 120k, then as long as you fire before ~18 years, you get the same return as pretty much anyone else.

 

[ERhoosier]

There's a reason they call it insurance. It's not an investment - period. Anyone that is permanently disabled sings a much different tune than this thread...

I am not a big fan of SS generally, but in fairness any discussion of "return" from SS should also include value of survivor benefits for children & surviving spouses.

 

[meierlde]

I am not a big fan of SS generally, but in fairness any discussion of "return" from SS should also include value of survivor benefits for children & surviving spouses.

One might add the spouses benefit if the spouse does not work. As well as if you get SS retirement benefits your kids under 18 get benefits also.

 

[audreyh1]

Not if you FIRE early I was well over the contribution cap for most of my working career but since it's short I'm still under the second bend point.


If the second AIME bend point is roughly at 5k, SS contributions capped at 120k, then as long as you fire before ~18 years, you get the same return as pretty much anyone else.

Same here, I think. Although I need to look more closely.