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May 04, 2010


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"Because it is indexed to the government's official inflation numbers, it doesn't keep up with real inflation."

That seems like unsubstantiated opinion.

"Had the money we've paid into Social Security been saved and invested in almost anything, every senior would be retiring as a multimillionaire."

That is false. Even if you contributed the maximum amount and added the employer share and got 10% annual growth over a 68 year period you wouldn't hit $2M.
Most seniors contributed far less and get worse returns in private investments.

Interesting remarks on SS. First, I have to agree with Jim: it is not true that if you invested SS you would end up a multimillionaire. Out of curiosity, one day I ran the numbers. Figuring a 4% drawdown of the results, I personally would actually collect more from SS than I would had a lifetime of FICA contributions been invested.

Additionally, not "every senior" works throughout adulthood. Some of us work as wives and mothers. That labor is not valued, either in the marketplace (except by those who want to sell us something) or through financial recognition of our occupation at retirement. A woman who spends a substantial part of her adult life caring for a husband, home, and children, working sporadically around that full-time occupation, would retire with far less than a million bucks if the equivalent of her FICA were invested.

We've all seen what happened to our private investments in a serious downturn. Despite a layoff, I still can't draw money from my IRA (which is considerably heftier than the average American's), because I need to wait until those investments recover from the crash, when I lost $180,000. Meanwhile, my Social Security benefits did not drop or disappear as a result of the economic collapse. That benefit now provides more than half my net income as I try to cobble together a living in unemployment.

So as you can imagine, I'm getting a little tired of hearing all the badmouthing of Social Security. And I'm pretty sure I wouldn't like to see my retirement savings modeled on the plan of country that was a dictatorship until 1988.

"At least gold holds its value"

Not so fast. Gold is subject to speculative bubbles and other nasty stuff. It's not a steady inflation tracker. Pity the man who bought gold in 1980. He needed 25 years just to break even. See:

Very good post.

Jim and inflation: It's certianly not an "unsubstantiated opinion". The Federal Gov't in a briliant move changed how the offical inflation numbers were calculated. Had they not made said changes, inflation would have been higher and payments tied to inflation would thus be larger. Although there is plenty of opinion, it is certianly substantiated.

And at the current rates of SS (someone who is starting to pay in today), one would have around a million dollars that could be transfered to younger generations or spent on a nice boat all at once. Id love to opt out of SS for that very reason. Then again, its unlikely that I will ever see a dime I have put into the mess.

It is definitely true that the Government recalculated inflation at the beginning of Clinton's term. Whether this was a legitimate move (e.g., which measure is the most accurate reflection of real inflation) is an open question, a matter of both fact and opinion.

Obviously, the calculation as to whether SS is worth it depends on one's income and how your savings do. But an annuity paying 30,000$ per year that increases with inflation does not come cheap, which is basically what S.S. is (well over half a million). It is also important not to forget that SS is calculated on your highest 7 quarters of income, which is a nice bonus when compared to what you actually put in to the system.

I'm certainly glad that since 1940 those over 65 went from being the most impoverished group of people in the country to the least impoverished group.

"Stocks average 6.5% over inflation. Bonds average 3% over inflation. Thus after 25 years, $100,000 invested in stocks will have a buying power of $483,000. And $100,000 invested in bonds will have a buying power of $209,000."

Another financial myth perpetrated by the financial community. I like how they just whip up numbers like they are an absolute truth.

I believe bullets and guns are more valuable than gold.

Social security better be there when I retire since I'm contributing. If not, I believe there will be a bloody revolution.

I'm not an extremist but I'm not a dreamer either. I think I'm a realist.

StackingCash im with you, if its not there anymore when i retire, i will be serisouly pissed off since i will have paid into it for 40 years. I do think there should be a means test, a rising in the retirement age, as well as a strict rule that FICA payments should go towards these payments and not wherever the government wants them to go. That has been the problem, and i dont understand why it hasnt been fixed. any ideas?

Preferred Financial Services

Good to hear you'll be pissed if SS doesnt pay out... I'm pissed its cloudy today.

Means tested? Great. So I pay the max every year of my life, and I get nothing. But at least it will all be "fair" in the minds of the majority. Looking out into the future, this unfortunate desire for "fair" is a very likely solution. Yet another great reason I'd love to opt out of the mess. I should probably pay more for my cheese burger, car, etc too. Let's means test everyone to equality.

Yes inflation calculation process was changed in the 1990's. That is a fact. But that fact doesn't mean the new figures are wrong. The idea that the govt. current inflation index calculations are woefully inaccurate is what I consider to be just unsubstantiated opinion.

Those that have positive comments on social security are looking at the program from a historical point of view. Unfortunately, the system is going broke and changes will need to be made. Either higher taxes, benefit cuts or changing the eligibility age (or combination thereof) will need to be made.

Social Security is not a good deal/program if is non sustainable.

Opinions will continue to go more negative as the problems increase.

What kind of math is being used for the first post? For a $25,000 investment growing at 10% for 40 years, 25000*1.1^40=1,131,481.38 which is a capital amount much less than contributing the maximum amount to social security for a cap of $110,000 is $16500 year (7.5% of your income times two for the amount your employer contributes).

Granted a 10% return on stocks is unrealistically high unless your name is Warren Buffett, but using that assumption for a 40 year period and saving $2400 a year, which is what the government takes from a person making only $15,000 a year, millionaire status is still achieved.

Social Security is sustainable-the changes required are not ridiculous-small benefit cuts, an increase in the retirement age, and higher taxes are all possibilities. The real budget problems in the US comes from health care spending, because it is getting so much more expensive every year.

I appreciate the article's take on social security. The younger someone is, the more I think its a good idea to factor out SS when planning for retirement. As a 39 year old, I'm considering it a bonus if its there when I retire. I realize we pay into it, but I think its wise to look at it as a "tax", and instead focus on money you can save TODAY. Cash is king, and as the saying goes, possesion is 9/10ths of the law!

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