Gyroscopic Investing

I dug out my old Social Security earnings statements, and put together a spreadsheet of all of my contributions, year by year from 1965 (worked part time at the public library as a teenager), to now. I then took CraigR's historical numbers for PP returns from 1972 forward, and calculated what these "contributions" would have earned me if I had been able to invest them tax efficiently.

IRA's began in 1974, so I assumed I could get shelter the bonds and cash investments. Before 1972, I assumed that the amounts would just go into a normal savings account at the prevailing rates, 4%-5%. My effective tax rate in those early years, was low, so I ignored the tax on those early savings account earnings.

Here are the results:

Total SS contributions, including employee and employer: $134,745
For most of my adult career, I maxed out the SS contributions.

Value at the end of 2011: $1,027,809

It's incredible to look at the opportunity cost of Social Security straight on.  Think you'll be getting the full million back? 

As Harry Browne said: "(Social Security) operates on a very simple principle:  The politicians take your money from you and spend it as they please."

http://harrybrowne.org/GLO/SocialSecurity.htm

Where do you think the money comes from to give real gains to the PP?

As far as I can see it is because of a transfer of wealth from wages to asset holders. The reason why a wages linked pay-as-you-go system such as SS has lagged an asset based system is due to an unsustainable transfer from wages to asset holdings (productivity gains have caused profits but not  wage increases above inflation). The PP adds another tier onto that because much of the PP gains are from those poor souls who buy high and sell low and so transfer buy low sell high gains to the PP. The average persons 401K plan over the last decade has not provided such an "opportunity cost" discrepancy compared to SS.

If the population of people paying into SS is roughly a constant ratio to the population of people receiving benefits and a constant proportion of wages is paid in, then a link between todays wages and todays benefits can be maintained forever.  To my mind it is much more sustainable and efficient than an asset based system.

Somebody bandied about a plan some years ago to let us opt out of SS benefits if we put that same money in IRAs instead.  Employer portion would still go to Uncle Sam I think.

That plan will never get anywhere because the government likes money but what a step forward it would be.