THE BURNING QUESTION

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Last week, I went onto the Social Security Administration website to see how much I had contributed in Social Security taxes, and how much I would receive if I worked until age 67 and Social Security was still solvent. This got me to thinking, "What would have happened, if instead of being forced to pay Social Security taxes to the government to mismanage, waste, and steal, I would have invested the same amount into the stock market?

THE HISTORY OF SOCIAL SECURITY

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Before we find the answer to my question, let's take of look at the history of Social Security in the United States. The original Social Security Act was a 37 page document that was signed into law by President Franklin Delano Roosevelt as part of the New Deal Program in 1935. When it was first enacted, it was a 1% tax paid by the employee and employer on the employee's first $3,000 of earned income.

The tax rate and the amount of income that is taxed both increased throughout the years, and today, the first $127,200 of an employee's income is taxed at a rate of 6.2% to both the employee and employer. Two years ago, the law consisted of over 2,900 pages.

THE CALCULATION

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Now for the fun part. Stay with me, because the ending is quite dramatic. My report from the Social Security Administration (SSA) showed that since I had begun working at the age of 14, I had paid $71,364.98 into the fund. My estimated benefits if I worked until the age of 67 would be $2,309.00 per month. Assuming that I lived out the average life expectancy of a US male (age 84), in order to pay my benefits, the average annual rate of return on all my contributions would have to be approximately 4%.

Are you with me so far? Good.

I created a spreadsheet and dropped in my contributions each year, and the S&P 500 rate of return for each of the years to calculate how much better or worse I would have done on my own, without having the government "take care of me".

THE ANSWER IS...

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The average rate for the S&P 500 since 1980 is 12.97% per year. Being extremely conservative, if I used half of that rate for the remainder of my living years, worked until I was 67, and withdrew $2,309 per month until I died at age 84 (the same assumptions I used for the Social Security calculation), I would still have $2,177,844 left over when I died, whereas all of my retirement would have been depleted under the Social Security calculation.

I could withdraw $8,000 per month of the money invested in the S&P 500 upon retirement versus the $2,309 withdrawal under the Social Security Administration. And this is using 1/2 of the historical rate of return for the S&P 500, and the SSA is projected to be bankrupt within 6 years, leaving me withdrawing nothing in 16 years when I would be eligible to collect under "normal retirement".

So the real question is, "What happened to all the money I was forced to have withheld from my paycheck and contributed to my retirement fund?" If anyone wants to see how much farther ahead they would be if they had invested their money instead of the government, let me know and I'll send you a spreadsheet to drop you numbers into and perform the calculation.

Steem on, my friends!