Why Social Security is a Success, in Four Charts

[pedro47]

I'm sorry to hear about your cousin's loss, but they either did something really stupid (like panic selling at the bottom) or were in some very risky investments. Any basic stock portfolio (index-based or whole-market based) has fully recovered from the 2008 crash, plus a healthy growth. In fact, we have been in one of the best bull markets in history for almost 7 years now.

If anyone has a 401k that hasn't recovered in this fantastic market, they need to fire their advisor! And if it was self-managed, they have no one to blame but themselves. Sorry to be blunt, but I am so tired of hearing how someone's portfolio hasn't recovered from the "Great Recession" -- the numbers and facts only point to mis-management if that is the case.

Kurt

I agree with you 100& your statement if factual just asked any money advisor.

 

[MichaelColey]

What is the minimum one needs to pay into the system in dollars and years to get the best return on their payments? If it matters say they live to 85.

The Heritage Foundation did a study on the returns that people typically see on the money they've paid into social security, and in most cases it's a very low rate (like 1-1.5%) and in many cases (particularly with minorities), it's a negative return (i.e. they pay in more than they eventually receive).

The only way you can really get a fair return is by living a long time. But even that won't be a big return.

FWIW, many HUGE adjustments have already been made. Keep in mind that when it was introduced 80 years ago, it was 1% of the first $1400 in earnings ($25k in 2015 dollars). In 1972, it was 8.1% of the first $9,000 in earnings ($50k in 2015 dollars). Today, it's 12.4% of the first $118,500 in earnings.

 

[bogey21]

The only way you can really get a fair return is by living a long time. But even that won't be a big return.

Agree that the way to get a decent return is to live a long time. As stated in an earlier post I have collected over $300,000 from Social Security so far. Frankly I consider that a "big return".

George

 

[geekette]

I'm sorry to hear about your cousin's loss, but they either did something really stupid (like panic selling at the bottom) or were in some very risky investments. Any basic stock portfolio (index-based or whole-market based) has fully recovered from the 2008 crash, plus a healthy growth. In fact, we have been in one of the best bull markets in history for almost 7 years now.

If anyone has a 401k that hasn't recovered in this fantastic market, they need to fire their advisor! And if it was self-managed, they have no one to blame but themselves. Sorry to be blunt, but I am so tired of hearing how someone's portfolio hasn't recovered from the "Great Recession" -- the numbers and facts only point to mis-management if that is the case.

Kurt

Thanks, Kurt, I was thinking the same thing - someone whose portfolio still hasn't recovered is just doing it wrong or trusting the wrong people to do it for them. And probably panic sold at the worst possible time vs holding good investments for the ride back up.

Someone close to retirement that was invested in riskier investments got what happens when worst case risk becomes reality. Diversify diversify diversify.

 

["Roger"]

The Heritage Foundation did a study on the returns that people typically see on the money they've paid into social security, and in most cases it's a very low rate (like 1-1.5%) and in many cases (particularly with minorities), it's a negative return (i.e. they pay in more than they eventually receive)...

I apologize in advance for a long post, but this is a complex issue and cannot be solved with simple answers.

1. The fundamental mistake here is to treat Social Security as if it were an investment program. It is not. It is more akin to an insurance program, but it is not that either.
   
2. The Heritage Study referred to was written in 1998. It suggests that if people were to invest in a conservative portfolio (50% equities, 50% treasury bills), they would have a rate of return of about 5% (with equities bolstering the low rate of return on treasury bills). Suppose the Heritage Foundation's recommendations had been adopted as of January 1 the following year. Average stock market returns since then have been 3.4%. Adjust for inflation and people would have done far poorer that the Heritage Foundation suggested. It could be argued that these were unusual years. On the other hand, if you were to believe some of the financial doomsayers (and I do not dismiss them entirely), the future from here could be even worse.
   
3. Suppose we were all to pay into forced savings programs as opposed to Social Security. What is to happen when we retire? Are we allowed to take the money out as we see fit? If so, many people will run out of money. Then the Heritage Foundation will need to figure in the cost of a government program to keep those people from being absolutely destitute. Very, very expensive.

Perhaps the solution is some sort of hybrid program. Something could be set up to keep seniors from becoming totally destitute like they were in the 1930's. Past that, people should be allowed to invest their own money and decide for themselves how adventurous or risk adverse they want to be.

My guess is that most Tuggers are smart enough to realize what I am describing is the present Social Security program. Yes, it can be tweaked, but what we have is just such a hybrid program.

 

[ace2000]

My guess is that most Tuggers are smart enough to realize what I am describing is the present Social Security program. Yes, it can be tweaked, but what we have is just such a hybrid program.

Roger, you just wrote exactly what has been going through my mind while reading this thread. The system works, why play with it? We have some changes we'll be forced to make, but it will be fine.

Let Social Security be the safety net for ALL people, and then let people place their additional retirement savings into any investment vehicle they choose - with as much risk as they want. We all know that the average $1200/mo is hardly enough to live on, everyone knows that. This only provides a solid base with a decent safety net.

 

[Elan]

Roger, you just wrote exactly what has been going through my mind while reading this thread. The system works, why play with it? We have some changes we'll be forced to make, but it will be fine.

Let Social Security be the safety net for ALL people, and then let people place their additional retirement savings into any investment vehicle they choose - with as much risk as they want. We all know that the average $1200/mo is hardly enough to live on, everyone knows that. This only provides a solid base with a decent safety net.

Yep, same thing I've been tempted to post. For those who will have SS as their only source of retirement income, it should be invested conservatively. For those that have further investments to provide additional retirement income, they can invest as they choose, with SS serving as the conservative portion of their retirement plan.

 

[Passepartout]

Agreed. I just call my Social Security check "_My Gov'mint Annuity" that I can't outlive. It's allowed me to leave my IRA/outside investments virtually alone since collecting my last paycheck. At last glance, It's been about $100,000 that I would have had to come up with from elsewhere.

Jim

 

[SMHarman]

There are simple tweaks to preserve it including lifting cap on wage ceiling for contributions and continuing to raise FRA gradually. Not in favor of increasing the payroll tax but is yet another small tweak available.

I am against means testing for the simple reason that those deemed not needing it still paid in. Further, it is becoming more and more likely for retirees to not have a pension, that 3rd leg of the stool. I am not in favor of punishing those that begin saving young because they know there is no pension for them (in effect, needing to save double, once for "personal savings" and the other to create self-pension). Plus, who decides the level of "sufficient means"? 40k or whatever in midAmerica vs coast is not the same yet many Fed rules just put forth A Number with no cost of living indexing.

Raising the wage ceiling on the way in also raises they payouts at the back end. If this is to have any level of equitably.

With low caps on what you can save in a 401k compared to what you can save in a PPP in the UK this could work well for those on the coasts but the PR of $5k+ SS checks would be visually bad.

Sent from my LT26i using Tapatalk

 

[John Cummings]

There is 2 basic problems with SS. The first is that the ratio of workers paying into it vs people collecting has changed drastically because people are living longer.

In 1940 the ratio of SS covered workers to beneficiaries was 159.4 to 1. In 1960 the ratio was 5.1 to 1, 1980 it was 3.2 to 1, and in 2013 it was 2.8 to 1.

The FRA should be gradually raised to fix that problem.

The other major problem was the raiding of the SS fund. There is no fix for that other then to ensure that is not done anymore.

The people that are saying SS won't be around when the yare ready to collect are being very naïve. There is absolutely no way that the government will ever allow that to happen. It would be political suicide.

Of course all bets are off if we keep running up a huge debt like we have,

My wife and I receive approximately $40,000 /year from SS. My wife never contributed so our payback percentage will be higher than a couple where both spouses contributed.

 

[bogey21]

My wife and I receive approximately $40,000 /year from SS. My wife never contributed so our payback percentage will be higher than a couple where both spouses contributed.

Another example for those who say the rate of return on dollars invested in SS is poor. Say you and your wife live 20 years after retirement. You will have collected $800,000. In my case (and I'm 3/4 the way there) I as a single man will collect over $450,000. Lousy return?? Not for those of us who live long lives!!

George

 

[John Cummings]

Another example for those who say the rate of return on dollars invested in SS is poor. Say you and your wife live 20 years after retirement. You will have collected $800,000. In my case (and I'm 3/4 the way there) I as a single man will collect over $450,000. Lousy return?? Not for those of us who live long lives!!

George

You are absolutely correct. I have been collecting SS for 10 years and I have no intention of leaving this world in the near future. Even though philosophically I wish we never had a mandatory SS, I think we would have a lot of problems if we didn't. There are many of us that would prepare for retirement but unfortunately there are many people that wouldn't. These people would have to collect welfare that you and I would be paying for.