What is the ROI of Social Security? (Surprising Analysis)
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- Опубліковано 28 чер 2024
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0:00 What is the ROI on Social Security?
0:43 Case Study #1 - $60,000 Avg. Income
2:00 How Your S.S. Benefit is Calculated
4:12 Case Study #1 - The ROI Table
5:51 DON'T Misinterpret the Data!
7:35 Case Study #2 - A High Earner
9:18 The Findings From this Analysis
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Excellent. I think this analysis was needed. I will mention I laugh when people say if SS was abolished their employer would add the employer 6% contribution to their paycheck. If a company gets a free 6% gift they are unlikely to share it with employees.. They will pocket it and use it for executive bonuses. Just see what happened to pensions. A little went to 401k match but that is being ended by many companies.
Good point
Depends on whether the labor market is competitive or not.
You are sweating the small stuff if you are fixated on 6.2%.
Actually your employer will pay whatever you are worth. If they are paying more than what you are worth they making a bad decision of wasting money. If they are paying you less than what you are worth then they are making a bad decision because they are risking losing an employee if the employee is not willing to work for less than what they are worth.
It is not the company’s role to pay you what you want. It is your role to prove to the company what you are worth, then you will be paid accordingly.
The employer is willing to pay up to the amount you earn him. That amount includes your salary and other costs like taxes. If SS wouldn't exist, your salary would be higher. Otherwise, you would leave to work for someone else.
@@bradk7653 If a company get s free 6% gift they are unlikely to share it with employees.. They will pocket it and use it for executive bonuses.
I remember President Bush floated a plan for workers to have a option of putting the same monies into a private IRA mandatory with same withdraw rules, or current SS trust fund. Lawmakers in Congress killed the plan because the private funds were out of reach of their sticky fingers.
SS trust fund would likely be solvent today, with higher savings balances for seniors going into retirement had it passed.
There are countries that invest their SS fund in stock and they pay out about twice as much as our SS for the same amount of taxes collected.
GWB took $708 Billion out of SS and not give it back to pay for the Iraq invasion.
Interesting analysis. SS provides disability benefits in addition to retirement benefits. In calculating ROI, there should be a correction to account for what you would have paid to buy a disability insurance policy with disability benefits similar to those provided by Social Security.
As if anybody would do that. The extra money would be spent on more expensive cars and phones.
@@semosancus5506 my first question is so what?
The problem isn't that people would do unwise things. The problem is people are not free to decide to be out of the program if they want.
Liberalism, in its purest form, lets people decide for themselves.
It doesn't make Uncle Sam the arbiter of what people should do.
I'm not saying don't have the program. If you like Social Security the way it is, I'd never suggest you cannot be part of the program and how it currently pays out.
I'm simply saying other workers should have the choice to say no thanks, with the understanding they are foregoing the benefits>
Or, workers could choose a lower cut-off threshold.
I.E. maybe they only want income up-to $60k to be taxed for FICA Social Security. The rest would go into a government run IRA where the money is theirs and their heirs.
They could invest the 6.2% of anything above that 60k in something like an S&P500 index fund. That money would be theirs and when they died, it would pass to their heirs.
The best of both worlds. The ROI lower wage earners get with the benefit of being able to invest money that would otherwise pay a lower ROI as it would be in the 15% bend-point tranche.
Ditto, survivor benefits. But still, for a basic analysis w/o losing his audience, this presentation was superb!
@@larryrobx I agree, this was a good analysis. I'm thankful for Eric's insights.
Social security also provides spousal benefits and then of course Social secuity provides nothing if you pass before reaching the age of 62. The permutaions of overall returns are endless. The author does do a great job limiting the discussion to his straight foreward examples.
My FRA occured in 2021. In 2020 my company closed and I was on unemployment almost up to my FRA. As I couldn't find employment (covid mostly) And I didn't want to dip into savings I took SS. I'd loved to have worked a couple more years. But again I got time caring for my elders for which I gladly have over income.
Interesting and informative video. I was bored one week (retired) l wondered what if I had invested my SS taxes into the S&P and never withdrew them until I retired. I down loaded my SS payments from its website. My first being about $300 in 1962. I then downloaded the annual rate of the return from 1962 forward. My monthly benefit is less than $2,500. If I was fully invested my current balance would have been almost $2.8 million! Withdrawing monthly at a 4% annual rate, would yield me over $9,300. And, the principal balance should go up. Thanks for your diligent analysis.
YES, ROI really isn't the best way to look at SS. A good portfolio should do better then just the S&P too, plus modern indexed annuities with lifetime income without annuitizing will pay more like 6.5% for life guaranteed, more if you wait longer too!
How did you account for disability, survivors and spousal benefits in your calculation.
Social Security is insurance
Did you account for the S&P500 going down sometimes more than 20% in one year? I did, and since that happened 4 times in the past 50 years (once it went down 38%!), my balance took a huge hit each time.... if I just took the average of 9% over the last 51 years, my balance would now be 735k; but taking the actual returns year-by-year, it's only 241k... and if I took that and bought a single-premium immediate annuity now with a 2% increase every year (to keep up with inflation), my monthly return would be almost exactly what my social security pays.
@@optiskeptic4746 Now you are talking about sequence of returns, where you get a completely different outcome based on the order of the actual returns. Sorry you didn't have a better financial advisor though; with a proper portfolio you should have done WAY better than that! Of course it doesn't help that we've had 2 really bad years in the last few years, mostly do to Covid.
@@johngill2853Thank you...people always forget that!
Great session. So glad you addressed the volatility matter causing a sequence of returns risk. Most everyone else misses it. 👋
Excellent! I’ve argued these exact points many times. High earners get a poor return on their social security inputs and low earners get a good to excellent return. It would have been good for this analysis to add situation #3, someone earning near the bottom of the income brackets, maybe someone near poverty level to highlight just how progressive the system is.
Surreptitious theft usually does have a good return.
Agreed. A low income case would have been an add'l useful comparison to the included middle and high income cases. That being said, this author does a magnificent job of conveying all these complicated SSA calc's in simple layman's terms. A few heuristics to further grasp these scenarios: up to the poverty threshold, income replacement is almost 100%; from that point up to 1/2 again the median wage, the replacement rate is cut by 1/3; and from there upward, it's cut by an add'l 1/2.
What is the ROI impact of retiring early? Let’s say work only 20 years, max out contributions for the last 10 of those, stop working at age 42. So 20 or 25 years of zero income before claiming. I believe payout would be equivalent to someone who earned a steady modest salary (say around $50k) for 35 years, but I’m guessing since the early retiree’s contributions were front loaded the ROI would be worse than that of the modest earner but better than someone who maxed out for most of their career due to higher replacement rate?
Excellent!!! Finally someone does the numbers and admits there are earners who aren’t getting great results considering their (and employer) contributions. Most of us working in our union shop paid the max every year because of overtime. Our spouses mostly worked too. Few spouses received spousal SS benefits. None of us will have great ROI’s when all is said and done. Would we have opted out if we could have? Maybe but probably not. Just another tax. Another point - 99% of financial planners advise delay, delay, delay your benefits. Just wait till you are 72, have RMD, IRMAA and the highest tax burden of your life. You’ll wish you had taken SS as early as you could have. Great video. Will subscribe.
I wish you had showed the percentages if you took benefits at age 65, which is what I am planning to do at the moment.
Great video. Calculating based on both sides of contribution is how I've thought about this for a long time. Really glad to see you make this important point.
As for the return calculations, I came in at a slightly negative number, even with the spousal benefit, because of the government benefit offset (she was a teacher.) My grandfather, however, made a lot of money compared to what he contributed.
The benefits will just about certainly cut in the 2030's, making the analysis even MORE negative. This leads me to think SS is more or less the biggest Ponzi scheme in the history of civilization.
Of course it is a ponzi scheme in all but name. The amounts being paid out come from those currently paying in. The investment returns do not even begin to cover payments, but sometimes pay in does get ahead of pay out.
You might consider it to be "insurance" but unlike insurance, no private company could do it even as a non-profit, because they would have gone bankrupt already. The risk is unbounded and people would simply not pay the true cost if it were possible to compute it. See long-term care insurance for an example.
Very interesting - thanks for taking the time to produce this.
The only problem with this is that Social Security is NOT an investment. It’s insurance. Old age insurance, to be exact.
Excellent, as always.
Another excellent discussion Eric. Thanks for clearing up a topic that virtually everyone has wondered about at some point in their working careers. Larry, Central Valley, Ca.
Social Security is the base on which most retirement decisions rest. Thanks, Safeguard Wealth Management!!
Thak you for posting this SS explanation.
I was at the wage cap in 1989 so mine is closer to case #2 but I am only 61 now so starting to evaluate this so thanks for the video
Interesting analysis! The ROIs calculated assume a 35 year work history correct? Working longer than 35 years seems like it would reduce these ROIs as you're contributing in additional years that aren't being considered in your benefit calculation.
Correct. If you worked 40 years, then you paid in for an extra 5 years and receive no added retirement benefit from those additional taxes
@ardWealthManagement I have worked since 15 years old though did not start making "real" money until I was 20 when had to pay my own way through college. Made $30K working 30 hours/week in commissioned sales in 1982. Nearly max on the chart for that year. Yep, shoulda stopped years ago...LOL I wish!
Excellent article to point out how this progressive tax works... I've have always wondered how they standardized the lifetime earnings and calculated the benefits. Now it is much clearer.
I hate how they call 67 "full retirement age". It's basically 70 since your benefit keeps increasing until then.
Not really You need an arbitrary age to call FRA. For most of us it is 67. 70 is just a premium.
@@DonaldMains it's like getting a little more per hour pay for working overtime.
It's not an ideal term to use, especially considering that it's mostly the age when you can make as much earned income as you can without penalty. That's more of a "potential unretirement age" for some people.
SS requires an age to set as the benchmark for the "Primary Insurance Amount" or PIA. All calculations for deductions and increases are based on the PIA, meaning that the FRA could be whatever you wanted it to be - but beware the emotions and politics if you should decide to call age 70 the FRA. That's the reason for keeping FRA and the PIA calculation in sync.
Agree. You can start collecting at 62 if you like, but 70 is the FRA. Wish the SS administration would get it right.
I have maxed out my 35 years. If I take my SS at 70, and have only Roth (tax free) I will pay no taxes. Aren’t I getting a better return on my SS if pay zero taxes? From 70 to 90? Remember it’s not what you make it’s what you keep. Thoughts?
I showed benefits received on a gross basis. So if someone was having 85% of their benefits taxed, their ROI would be lower than the data showed. So if you have all Roth assets and thus S.S. will not be taxed, these numbers should closely match your ROI.
I didn't feel there was a great way to show a tax effect in the analysis without pages of tables
@@SafeguardWealthManagement before you wait until you are 70 run the numbers if you take it at 62 and account for inflation and add a decent interest rate on your early payments, a dollar taken at 62 will be worth much more when you are 70 after both inflation and interest, the normal "break even" calculations include neither.
Yes, I had to wonder about SS being partly taxable whereas some investments are not.
You will pay tax on some of your social security benefits. Above $25,000 single and $32,000 married becomes taxable.
Very interesting.. Good like all your stuff! Of course, I will view it through a lens that confirms my initial preferences 😀
You are not alone my friend 😉
I know you said not to conclude that we should start filing at 62, but that’s exactly what I’m going to do 😂
This is very interesting to us government workers that are having what would be our Social Security taxes diverted into other pensions. In my case, that 12% is getting put into an S&P500 index fund instead, but I will have to convert half of it into an annuity upon retirement. It makes for a hard comparison, but these numbers help.
This analysis is a good start. But in my case, I may be waiting to take SS to smooth out income tax. I may be forced to take MRDs on an inherited taxable account prior to my own retirement. SS income taken early (say, at age 62) would then just pile on to that income at a high tax rate.
If Social Security is capped at $160,000 of income it's an extremely regressive, not progressive tax. There should be no cap.
The contribution is capped because the benefit is as well.
Because I was a relatively high earner, my ROI isn’t as high as those who made less than me. But I’m happy to share some of my ROI with lower paid earners. Progressive taxes are the best ways to impose tax.
I drove a cab from age 18 to about 24. I was paid in cash so I could report as little or as much income as I chose, and what I did was to report some minimal social security due (both halves!) for every quarter. Back then my total earnings were less than maybe a dollar an hour. Later I got a career with the Federal Govt so I left the SS system. When I retired, I received a nice pension from OPM but also SS benefits for my minimum. I received back everything I had paid in within about 18 months but it goes on and on and on.
Social Security was set up to be a long running Ponzi scheme, but the problem today is that retirees are living much longer but there are fewer and fewer people working, so the percentages have changed, there's too many people cashing out and not enough paying in. That is why it is broken and getting ready to collapse.
You kind of touched on it, I've always wondered that if someone took average benefits at 62, and took those dollars and invested them (dollar cost average) in an S&P index fund and reinvested dividends for 8 years, then at 70 took the dividends as cash payments and added those cash dividend payments to their current SS check, would it be MORE than waiting to turn on SS at 70.
Agreed. I hear people claim great returns not realizing that the math works differently for every situation.
Yes, of course. Risk-adjusted returns plus progressive tax rates constitute the difference. However, as the author notes at the end, there's nothing you can do about that ...
OF COURSE the ROI SHOULD be based on ALL the taxes paid in.
Cash is fungible. Cash flows affect society.
ANY program needs to be evaluated with HONEST context re ALL the facts, government program or private company program.
And I say this as a newly minted senior citizen who paid lots of SS and Medicare taxes and hopes to benefit from those programs.
Knowing that the SS trust fund only "invests" in US treasury debt, an ROI of roughly 5% when compared with all tax contributions from employer and employee makes sense.
I started my SS at 62 1/2, my wife who is 20 months younger than me started at 62. With my pension for working 25+ years we’re doing just fine.That was over 3 years ago & we never looked back. Haven't touched our investments other than to travel. I had two brothers die of cancer 3 years apart. One died at 62 & never drew a dime of his SS. The other died at at 65 & drew 10 months. Let's be honest here, the reason the Government is offering you a bigger payday at 70 is because they're banking on you not making it!
The beginning SS Tax summary is very understated, maybe to make your argument sound better.
An average of $59,928 for 35 years means $2,097,480. That is over $260,000 of contributions that sits in the treasury and makes compound interest for 35 years. That’s how much is “your contribution “. Only after you receive that much is there any ROI.
How much people actually get just their contributions with interest back? Or less?
That is the question you should address first.
The big scam is that you never get your "principal" back from all your contributions. Your example equates to a total 12.4% SS contribution of $619/month.
You could invest those $619 payments instead in a conservative portfolio of 50% stocks and 50% bonds/US Treasuries that has historically yielded 7-9%. Investing $619 monthly at 7% for 35 years would give you a nest egg of $1,114,852.
You could retire after 5 years and withdraw 4% per year ($3716/month) and leave the other 3% to allow the portfolio to keep up with inflation, and that $1.1 million would be yours, or your spouse's or kids' when you die. For comparison, the maximum SS payment if you retire at 62 (after 40 years of work if you start at 22) is $2710, and $4873 if you retire at 70 (after 48 years if you start work at 22).
And using those same 40-yr and 48-yr work periods, after 40 years your portfolio would be worth $1,624,759 and $2,919,152 after 48 years. At 4%, that would allow you to withdraw $5416/month at age 62 and $9730 at age 70, and you would still own the principal.
Love the analysis, but one nit to pick. You can't count on an employer paying you more just because their side of SS would be gone. It's more likely that they would simply see it as a reduced cost and not a payroll entitlement to pass on to you. That's not how the accounting would be treated by a company.
Theoretically, employers would be forced to pay their employees more, in order to stay competitive. The free market always rules.
But if I move overseas and at some point have the option to stop contributing to social security. If I am a high earner, is it probably a good idea to opt out???
These examples, while good food for thought, are for individuals. If you have a non-working spouse drawing on your record, the spousal benefit significantly increases the ROI.
I don't think you explained the ROI chart @3:40 very well. How did you obtain the 5% ROI number? Year 1? of what? Retirement? Otherwise, thank you
What would the return of investment be for someone who got disabled in their early twenties? How about your kids if you pass away and they get survivors benefits?
I kept waiting for mention of cost of living adjustments but didn't hear it. Income stops indexing at 60 and the COLA kicks in afterward. Your example is kind of similar to mine but instead of getting $3,100/month, I'm going to collect over $4,000 at 70. If you took the average COLA increase over whatever number of years you choose (the past three years were a disaster and skewed it upward), you would still get a larger payout. Right now, a good average would be about 3.2% compounded annually.
Know that COLAs were built into the analysis. I didn't mention in the video, which may be your point, but I used a 3% flat COLA assumption. The higher COLA is, the more it will cater to delaying and the higher ROI there will be on S.S.
@@SafeguardWealthManagement "The higher COLA is, the more it will cater to delaying..." A subtle, but important, point -- inflation insurance against our gov't.
Very interesting, the moral is, not to make more than $1000 a month to receivethe highest ROI. :)
SS is a system to redistribute wealth, it all depends on how much you make. the more you make the more you lose.
No
@@Toomanydays it sure is, I never put as much into my 401K as was taken from me in SS taxes but my 401K is going to pay me more than twice what I will ever get from SS even if I live to over 100. but my ROI would be a lot better if I was low income. if you make more than about the $1174 per month on average you will never even break even if you are self employed or factor in what your employer puts in from your earnings for the company(it's the same thing).
Yes, and also the younger you are today the more you will lose.
@@gmil2573 I would definitely agree since I don't believe it is keeping up with the real rate of inflation even if it doesn't run out of money because it is lending to the fed at well below a decent ROI
I’m gifting my millennial daughter most of my SS money so I guess it is wealth redistribution.
Of course you must include the so-called "employer matching". Self-employed people have to pay it, so you must count it for employees as well, no question. Wish i could have opted out of SocSec decades ago. They could have kept 1/3 of the "contributions" and I would still have come out ahead investing the remaining 2/3. SocSec is NOT a good deal. It's amazing that the program is so popular, but then too many people don't understand math or know how to think deeply.
Exactly. I'm thinking those who created the program also don't understand math as it's running out of money to pay the full benefit formula as it's architected today. Once all the "IOUs" are spent, benefits will be cut by about 25%
The fact I get an IRR based on inflated dollars is why SS is going bankrupt. SS doesn’t invest my money, but needs to give me inflation adjusted funds with an IRR of 6 percent? That is destined to crash. If I give the same money to an annuity, they have to invest it in order to get me anything back or they would go out of business.
The other half of this comparison is what is the value of my ss contribution compounded over 35 years
5:12 - More probably - the employer will pay out the "extra" as dividends or bonuses to senior management...
What employer would really give the employee the 6% they pay now. The fact that ss payment are not dependent on the stock market provides some security especially for people with a lower income. Also survivors benefits and minor child support are huge.
Is it your average earnings or your mean average earnings? One bad year could tank your number.
I owned and operated my business for 20 years so I paid both the employer and employee tax to social security. I imagine ROI on this will look substatially worse since I paid in both sides of the tax.
True, but lots of benefits and write offs available to business owners that employees don’t get.
Didn't you company pay the employer part and write it off as a business expense?
@@robevans2114 not if you are self employed as a schedule C filer, you pay 15.3% minimum payroll taxes.
@@robevans2114 So, he paid in a $1 to get 20 cents back from the government as a deduction. Remember, a deduction offsetting income is not a tax credit (receiving 100% of an expense).
Included in the last row of the tables
They started social security in a completely different era than ours. Imagine telling people in the 1930s that your retirement is going to be based on the stock market. I doubt many people would have gone for that. There were no index funds and I think very few mutual funds. The Wellington Fund started in 1925 but I am not sure how many more there were. The fees were probably much higher then. The fees on some funds are still pretty high, but the investment arena is a mature industry that makes it pretty easy to invest now.
I wish we would have kept the money supply the same and not increased it through the Fed. That way prices would come down instead of having inflation each year that we have to keep up with. The Austrian school of economics promotes that.
Not true, many people invested in the stock market in the 30’s, and much of the 30’s actually had positive returns, a number of years the returns exceeded 30%. The problem was extreme drop from 1929 to 1931. If you started investing in 1932 you did really well.
@@bradk7653 I am not saying it wasn't a good idea to invest. If you invested at the bottom of the market you did well, but I am saying it was public perception and how they viewed it. They didn't have any idea how well the market would do. We know now that it improved. My dad was born in the 1930s and I remember him commenting in the early 80s how the stock market was just gambling. And it wasn't easy to invest in the 1930s. They didn't have index funds so it made it harder. It is much more difficult to pick individual stocks.
@@bradk7653 I am not saying investing in the 1930s was a bad idea. I am saying it would have been difficult to pass something like a 401k or ira because of public perception about the stock market. They didn't have index funds so it would have been very difficult to invest like we do now. Plus,, they didn't know what the stock
market would do in the future. Even mutual funds were not like they are now. My dad was born in the 1930s and he said to me in the early 1980s that the stock market was just gambling. I just don't think they even thought about doing what we do now and if they wanted to it would have been difficult to convince people it was a good idea.
This analysis is flawed. It ignores the many other benefits of social security such as survivor benefits for children of a deceased parent, or disability benefits for persons whose working life is cut short by disability. In both cases, the ROI is very large because the pay in could be quite short. But my best example is social expediency. If we didn’t have mandatory social security, many people, especially at the lower end of the earnings continuum, would simply have nothing to support themselves in their old age. Since we can’t, as a nation, simple allow those people to starve or freeze to death, they would swell the welfare rolls and and we would pay for them anyway with no contribution from them whatsoever. For the well off who live a long and economically productive working life, many of them, but not all, could be much better off funding their own retirement but that is not the principle purpose of social security.
Very well said. The number of people even with higher incomes that consistently invest and stay invested is small. Even myself whom has always been interested in investing has made many dumb investment moves over the years. I always laugh when I read the comments about how they could have done better on their own.
You seem to be assuming a message from the video that I didn't voice. I didn't say the system was good or bad. I didn't say that we should or shouldn't have a safety net here in America. Yes, I did not go through every variation in benefits S.S. provides. I hardly think that delivers a "flawed analysis"
" If we didn’t have mandatory social security, many people, especially at the lower end of the earnings continuum, would simply have nothing to support themselves in their old age. Since we can’t, as a nation, simple allow those people to starve or freeze."
Or SS could be replaced with a tax free personal investment mandate of the same level.
@@wisenber yes, let workers CHOOSE where their money is going. Also, if their account is not depleted, let their heirs inherit the remaining balance.
Interesting analysis, SS system has worked well for average earners. How would ROI compare with putting all 12.4% into a S&P 500 index fund or a 60/40 fund for 35 years ending 2023?
I did this, and used my actual numbers, and the actual SP numbers, not the average. Starting at age 25-62, (when I started taking SSI). It was almost $2 million. Plus, when I die, it would go to my estate, not disappear.
Great question. This ROI premise ignored the opportunity cost of all those contributions over working careers.
I ran the numbers back in 2020 on median wage worker working for 40 years (1980 - 2020)
They would put about 210k into the program and should have a nest egg of about $1.6 million. They could take their full final wage of about $63k each year, with COLA and never touch the principle most years, at the average RoR of 9.8% over the past 50 years.
Even in down years, they'd never need to sell as dividends are about 2% each year, making about 1/2 of the needed $63k out of 1.6 million. So the amount of shares one would need to sell would still be small in a down year.
If one is taking 4-5% of that 1.6 million each year, they should be fine. Not actually touching the principle value most years.
@@buffuniballer Well done calc's, Buff. A stark reminder that SS is social insurance not a market investment.
@@larryrobx sure, and I don't wish to purchase as much as the government forces me to purchase.
Let me buy up to say the end of the 32% tranche in the bend point formula.
Or, let me "self-insure" by investing on my own.
I recognize it's insurance. It's the forced participation in a mediocre program/product that makes me displeased.
Taking SS at full retirement and investing it always is better than waiting to 70.
I don't see the the deduction of the ROI from the taxable amount of social security. Unless you have no other taxable income source most persons will have 1-85% of their Social Security included in their taxable income.
SS is a good deal at least for me. I filed early at 64 and today get $2700/mo. How much money would I need to buy an annuity that would give me an inflation adjusted income of $2700/mo for life? $500k. Could the same money have grown to $500k? Maybe is probably the best answer.
I'm 74 and single. My SS income would need $628K @ 5% invested for $31.4K/year but I have additional $12.65K interest from savings for about $44K/yr income. I hope to live comfortably without withdrawing any principle until death with at least $510K (some in a Roth) to distribute to my heirs.
if you make $1175 all your life you get 90% of that back in retirement, more than the 84% left from what your earned after ss tax when you worked if you were self-employed. but if you earn over $7000 mo. you get 15% of that back, not 90%. so your ROI depends on how little you make. I put about 10-12% into my 401K and 14% into SS taxes. I will get about the same as you from SS but I had over $600,000 in my 401K when I retired at 55 7 years ago. but I took a huge hit when joe tanked the market in 2021.
One question I have seems to be missed by a lot of people. Covid killed ~ 1,000,000 people in the US so far. 60-80 % over the age of 65. So the unpaid SS on those would seem to be a lot of money, right? So should that have not increased the coffers of the govt? Should there be a lot of windfall social security money that did not have to be paid out to beneficiaries? Where did all that money go?
As I recall, SS will be doling out more money than it takes in starting around 2034, thanks to all the boomers retiring, Covid deaths pushed that back a bit. You might say SS caught a little break.
According to my SS records, my employers and I contributed about $300K over 52 years and at 70, I will receive $52K. I put the about the same amount in my 401K over 30 years and at 70, I can withdraw $120K annually. I would have rather had all of that money to invest myself rather than let SS handle it. Did they let Bernie Madoff handle the SS fund?
I'd forfeit what I've paid so far to opt out from now on.
The lower your lifetime earnings, the higher the ROI is as a ratio of what you paid in.
Only about $5k difference in the net present value between 67 and 70. Not a big difference.
If I include both my taxes and my employer paid taxes, excluding any inflation increases to my benefits if I stared at age 62 in the next 2 month it would take 10.5 years to break even just for total taxes paid in. So the only real ROI is the inflation index for cost of living. So for many people Social Security offers a negative ROI if you count inflation over your working years, and the fact you could earn more in a bank savings account when compounded over your lifetime. For others they do collect more than they paid in, especially those with long life spans and low income. So Social Security is not a retirement account that returns your taxes as an investment, it is a necessary social welfare program especially for low income individuals with no savings. I wish we would look at it for what it really is, a safety net for the elderly. While some people might not need it because they are financially okay, more than likely those people have paid in more than they will ever get back.
Your 35-year earnings history IS adjusted for inflation, so your premise is flawed. But yes, SS is a social benefit program that necessarily favors the lower earners. Even high earners need to consider that without the guaranteed base income (inflation adjusted!) of SS we would not be prudent in making aggressive investments - we enjoy higher returns (hopefully) because we are able to accept more risk.
If you're a business owner or self-employed, the ROI is horrible.
Did you include the employer-paid portion? If self-employed the person would have paid twice as much, and the employer only pays that as part of the wages they pay.
If you did not include the employer portion, the ROI is 1/2 of that presented.
Thus why one should not be self-emplyed.
Bottom line of the tables shows the age 67 ROI for paying both sides
Yes indeed. Self-employed people also face the full cost of providing insurance benefits. You have to make a LOT more money on your own to reach equivalence, or be married and rely on benefits provided through the spouse's employment.
More evidence that Social Security needs to go. Lower earners roi seems on par with what they could get investing for themselves while people who cap out face a net loss, and that’s without the likely benefit cuts and FICA tax increases that will happen as we fall into demographic collapse.
The lower earners won’t invest and cry to the media that the evil government is leaving them to starve.
Social Security ROI can only be accomplished comparative analysis. Compared it to a force, 6.2% for 35 years, starting at age 25.
This means 40 years of the S&P 500 l, but only pick your favorite 35. The result is astonishing.
But no one says you have to work for more than 35 years. If fact I stopped working @59 partially because of the SS taxes. I already had my top 35 years, and any income I would have earned from age 60 and later would have no impact on my SS benefit, and any of those FICA (and Medicare) taxes would have been wasted. My view on taxes is to pay as little as possible.
If you live longer, the total return will be higher.
Yes it would be. I wonder what the numbers look like if retired at 70 and live to 105 or 110 ?
First of all you need to say what ROI stands for.
Secondly. "Was it worth it"
You didn't have a choice.
Thirdly. SS is not a retirement account.
It is insurance against getting old or disabled.
It's not even insurance in some cases. If you have never been married, don't have any children, your parents do not depend on you for support and you die before claiming benefits. Your family gets nothing.
Hahahaha
This presentation tried to cover too much too fast. I’ve been collecting SS for 8 years and struggled trying to understand what he was talking about.
Doubt the numbers. If you average 60k per year income for 40 years, your lifetime social security taxes are way more than 90k
It all depends on when the income was made. I'm thinking the 40 years spanned from something like 1970 to 2010. They likely had several years where their income exceeded the maximum taxable earnings.
The average $60k per year was inflation adjusted to today's dollars. But the $90k in social security taxes was in actual dollars from throughout the career, not adjusted for inflation.
According to the CDC, the average life span of a male in the USA in now 73.5. So if you collect early, you get 11.5 years of SS withdrawals.
That likely is the average age considering starting at age zero. Starting at age 66 for example gives the expectancy at roughly 17 years. So if you made it to 66, "on average" would live to 83.
@@chessdad182 Correct, if one knows anything about statistics, they would realize that you have to compare apples to apples. Comparing an infant to a a 62 yo man is not valid.
By that logic all 73 year olds will die in the year they turn 73, which obviously doesn’t happen. The main reason life expectancy from birth is so much lower is infant mortality, drugs deaths, suicides and murders occurring at early ages.
Wrong stat. As of 2021, the average life expectancy for a 65-year-old in the USA varies slightly depending on gender:
Men: 17 years, meaning they can expect to live on average to around 82 years old.
That is a little misleading. You need to look at life expectancy for those who are already +40 years old. This will remove infant mortality and skew the table upwards for those who are in adulthood.
@@briangasser973 plus drug overdoses, murders, suicides, and traffic accidents.
Doesn't matter and paying a tax is not something you have control over, or can do differently so why do you care about this to even waste time calculating it. Might as well calculate your ROI on regular income tax you've paid in and reference ever gov't service provided by the Fed gov't that they've used. About as useful.
There is a problem with your comments about volatility.
If ones contributions were invested in the S&P 500, at retirement one would have a large enough surplus over value of Social Security benefits that one could withdraw the equivalent of Social Security benefits and always have a surplus.
But, people do not react well to volatility.
I would suggest that those who need their Social Security benefits, take them as soon as possible. And those who do not have a need take them as soon as possible and invest them. But, again, people do not react well to volatility.
You're saying that volatility is even worse than I made it out to seem due to the behavioral effect? Example: Investors bailing from equities during a drawdown?
I agree.
0:30 - NO THIS IS WRONG. THE EMPLOYER DOES NOT "MATCH" - THE EMPLOYER WORKS YOU HARDER TO COVER THE 6.2% THEY HAVE TO SHOW ON THEIR BOOKS! THEREFORE, YOUR "ROI" IS EXACTLY HALF OF YOUR COMPUTED RESULTS!
Why not do an IRR or MIRR calculation? ROI calculation is really inappropriate for this time span.
You completely ignored the time element, which is why it looks like nobody should file at 70.
I did do an IRR calculation. IRR based on non-periodic cashflows
@@SafeguardWealthManagement Great. Please share the result. I bet it's well below what a prudent investor could get.
I will have paid the max for 35 years - ROI is crap
It a good thing that SS is a progressive system because the SS benefit for those who actually need it most would be next to nothing without those extra dollars coming in from high earners. If I had my way, the income cap on the SS tax would be removed entirely and that extra revenue could help shore up the program for decades to come. It is important to remember that SS exists primarily for working class seniors who would not be able to survive without it, not for high earners who will be fine regardless. All workers pay taxes and those dollars often fund programs we don't like or that don't benefit us personally, that's just reality. I would much rather my taxes fund programs that provide security for my fellow Americans and stabilized our society, as opposed to funding endless war, corporate welfare, private prisons, and other such nonsense.
This shows how unfair Social Security is. It's a wealth redistribution program that take from what it calls "high earners." Yet when you look at the income levels, the earners are middle class earners.
People should have the right to decide where the cap is for Social Security "contributions" in a year. I.E. maybe they only want AIME up to the top of the 32% of the benefits formula. Workers should have the option to have any additional dollars actually invested on their behalf into something like an S&P500 index fund so those dollars are working at least as hard as the ones that will be paid at the 90% and 32% bend points.
So called "progressive" systems are unfair to those who are forced to "contribute" at the same tax rate, but are paid a shrinking percentage of AIME.
Needlessly complicated presentation for the average joe.
Social security will go away as its bankrupt
"If that extra FICA tax didn't exist then the employer could pay that to you instead" 😂😂😂
Can we stop the myth that if things were cheaper for companies, the companies would take better care of the consumer or the employee?
Corporate taxes in the US got butchered from 35% to 21%. Were there any discounts to consumers? Were there any hourly wage increases for rank and file employees? No and no. The only effective strategy is to tax them into paying their fair share
Good point. The last thing companies want to do is pay their employees. They will ship any job overseas to save a few bucks on wages. In fact one of the reasons companies like HSA's is that they don't have to pay the social security taxes on the amount the employee puts in the HSA.
You tried to do too much with your analysis. Should have KISS. Current FRA would give ROI =X. Show all your work. Then show the results for 62 and 70.
The ROI on Social Security is 0 (zero) because SSI in NOT an investment it's a tax therefore there is no ROI. Social Security is a welfare program that not only distributes money to retirees (who are fortunate enough to reach retirement age) but also to adults and children who have little or no income (lots of eligibility rules apply). And lets not forget the non-citizens who live here (legal or not) and pay the tax as well. All of this distribution of money collected by the tax is done through government (political) largess and is subject to the political winds of change, not to mention campaign promises (or threats). So you say everyone is living longer?? Great! Lets raise the retirement age (no retirement pay like you expected) and let you continue to work beyond 65 (and continue to pay the tax). You can certainly do that now if you choose and always could, but the government is hoping that you'll kick off before they have to pay you your SSI. Don't forget that your spouse and heirs will lose all that you allegedly Invested over your work life at the time of your death. (just another reason why it's NOT and investment, it's welfare) So lets be honest about it. I believe in some sort of social safety net for those who, for reasons unknown, need financial assistance be it for old age or an infirmity of one sort or another. That is not the issue. My point is that if we are going to have an intellegent debate about this and other social safety nets then we to start by eliminate language that is designed to confuse and delude the tax payers. We can start by calling SSI what it is: Welfare. Just as an aside. I'm 73 years old. I've beaten the actuarial tables..
I like the analysis you've done here, but man are you reaching erroneous conclusions! By ANY measure, the forced tax of Social Security is a horrible "investment" for just about anyone who had a normal working career, where they averaged anywhere near the typical wages during that time. You're presenting these numbers as a total return on investment over a 30 to 40 year term, and (with a straight face!) telling us the returns aren't all that bad! You've got to be joking, right?! If someone invested 12.5% of their income into basically any other type of investment vehicle out there, but most significantly a low-cost S&P500 index fund, their total return would be astronomically higher than Social Security! Not only that, but the value they had accrued would go to their heirs upon their death, not back into the government's T-bill slush fund! Social Security is the worst forced-investment plan ever imposed on a citizenry and is used to prop up the Treasury notes that the government would no longer be able to sell, if it weren't for the existence of this incredibly wasteful program.
Opinion noted, and rejected.
@@coachhannah2403 - What opinion? Your argument is with basic math. DCO and compound interest have made my wife and I into EDM's, despite the forced forfeiture of dollars to the debacle that is Social Security.
@@jasonbroom7147 - I have no problem with math. Your conclusion doesn't use math. SS has multiple functions not included in your pseudoanalysis. Economics and investments are a bit more complex than you portray.
But, as far as math, your initial assumption is flawed, along with further investment assumptions based on generalities.
@@coachhannah2403 - If you earn $4,000/mo and invest 12.5% of it, at a modest 8% return, for 30 years, that's roughly $750,000 of money that you and your estate gets to keep, if you die the day after you reach FRA. How's THAT math for ya? SS is a rip-off for anyone who earned a decent living and really only benefits those too short-sighted to actually prepare for the future. It was a promise based on severely flawed premises and it has not only failed most of those it was supposed to help, it's less than 10 years from failing even more, when the best they can pay out is around 78% of what they have promised people for decades. Just like Obamacare, it's junk legislation and always has been.