The Social Security Act was adopted August 14, 1935 at the behest of President Roosevelt. It was sold as “social insurance” for the elderly – a regular monthly payment for those retiring at the age of sixty-five. A form of forced retirement savings for future retirement. It was to be funded by the contributions from its intended future beneficiaries and a matching amount from the employers. In concept it was a good idea, in practice it has just been another method of financing government.
“Using these pieces of information [employer and employee contributions made over my working life] I built a spreadsheet that calculated the Social Security taxes [employer and employee] paid each year (earnings subject to tax times tax rate for the applicable year). Then I calculated the amount I would have earned on those taxes if I had invested them instead of paying them into the Social Security System. I used three different rates of return in doing the calculations. First I used four percent and five percent, which are reasonable substitutes for Treasury bills. Then, as a proxy for investment in the stock market I used the growth in the Standard & Poor’s Index from the year in which the tax was paid until the close of 2004.”
“Well, using the Treasury bills, my investment would have grown to between $323,967 (four percent) and $379,339 (five percent) at the end of 2004. Had I invested that money in an S&P 500 mutual fund, the amount would have grown to $519,941. Not bad for a $183,650 investment spread over 45 years. But the real comparison is the monthly benefit that I could expect under the various options: Actual Social Security payment per statement $1,415/mo
Based upon 4% Treasury bills $2,106/mo
Based upon 5% Treasury bills $2,667/mo
Based upon S&P 500 performance $4,549/mo