The Cost Of Social Security
Why You Should Pay Attention
Politics makes unpleasant things as complicated as possible so that voters lose interest. Hence questions, like "What Does Social Security Cost", are answered in places which are difficult to find in words that few understand.
Here is the unpleasant fact. Many Americans have lost more than 1 million dollars to Social Security - but what is the cost to you? The average American loses about $600,000 to get something that is worth about $250,000 at retirement. We are spending quarters to buy dimes.
$600,000? That's Crazy!
Our defintion of cost is lost savings, which is what you would have if you had invested your contributions in a fund that you could not touch until retirement?
Our calculation looks at a typical worker born in 1970 who makes 2/3rds of median income. That is about 34K in 2010. We assume that the worker has 6% unemployment over the course of the year. We invested the actual contributions in an actual S&P 500 index stock fund. We don't have actual returns for future S&P 500 returns. So we look at rolling 40-year periods, and take the lowest return which is about 4% real on average.
The Other Side
Unfortunately, there isn't just one answer to this question because people can do more than just invest in the market. The Social Security Adminstration a figure based on the difference between inflation and investment returns of government securities. We think that opinion is wrong because NO ONE invests 100% of their retirement money in government securities. It grossly understates the actual cost of the system.