Social Security is optional

j-bird

There are a lot of different investments besides stocks try cd's Roth ira's

There are a lot of different investments

....and they all beat social security

The US has broken it's promise to its citizens. Many of us knew this day was coming for 30 years.

We know the reason SSI cannot become optional is because it would accelerate the demise of the entitlement elements of the program.

Personally as long as someone could demonstrate financial responsibility equal to or better than the US government I don't feel they should be required to participate. But for the reason I just explained, that will never happen.

j-bird, you could put your money in government securities, not stocks. You'd be earning single digit returns but it would as safe as SS.

I would be more in favor of a government forced IRA vs SS.

I also have defined benefit pension plan. Despite the % of AAA and BBB stocks required by the very stringent rules enforced by the PBGC, my and many other's plans took a beating. How many people lost everything due to 401k plans that the employer controls. If you propose that the Roth's are safer that remains to be seen IMHO. As for Government securities bonds etc what is most interesting was that as stocks fell through the proverbial floor, sales of govt securities skyrocketed, that in itself demonstrates a system that is dishonest at its core.

SS is a Ponzi scheme? WTF???? SS is a very transparent program which is solvent until 2036 at which time it would still pay 75% of its benefits. We have an exact accounting of the trust fund and actuaries calculate the life of the fund payout. I have never in my life seen a Ponzi scheme that operated in this manner.

The other Ponzi scenes haven't been mandatory, people had to be tricked into them.

The idea is not unlike the current 401(k)s and IRAs. People ignore them until they start planning to retire, then go "if only I had...."

I'm actually OK with that. There seems to be some part of our population that wants to protect folks from their own stupidity. If they go all their working life and don't put something away, we have NO obligation to help out...sorry.

Regards,

Mike

If they go all their working life and don't put something away, we have NO obligation to help out...sorry.

I call Baloney on that sorry. Do you ever think about the consequences of such callous ideas. Do you have the ability to imagine, Mikey?

Imagine old people laying on the sidewalk, hungry, and cold in every city in America. Imagine your great grandchildren having to hop over the feeble unwell seniors who were unable to save for their retirement. Imagine your great niece and your nephew living in a country where they lose their job at 67 living on the street hungry, cold and without hope. They are the ones that used their disposable income to support their aging parents when they were young instead of saving. Imagine that crippled man, whose wife died that is trying to feed his 4 hungry children; he has memories of those days when things were good, those days before the accident, the job losses, the catastrophic illness that wiped away his savings, those days when his life showed such promise. Imagine tripping over your poor relatives that insist on sleeping in the doorways of stores you shop at. Imagine the burden of the hard working person who has to choose to support his senior citizen relatives or save for his own retirement. Try to imagine, I mean really try, and keep in mind that bad things do happen to good people, even those that are prepared.

The cold callous, short sighted thinking of those around me help remind me of the badness in people. I wish someone would do me a favor and remind me of their goodness.

It is incredibly naive to think that we live in a world that removing the safety net of Social Security would be any but catastrophic to our country and our people.

$30k will pay into SS: 4.2% (regular rate 6.2%) by the employee and 6.2%, or $3,120 a year currently or $3,720 regular tax rate. With no pay increase over 40 years and a 8% return, you will have accumulated $960k +, or $481k for your 6.2% only. If you average a 2% pay increase a year, you'd have saved $1,210,000 over 40 years, or $600k over 30 years.

Worst case scenario, assuming typical 8% average market return, you still get $2k a month over 25 years (plus you get to let the remainder for your heirs), best case $4k a month.

I see I left out the word Employer: 6.2% employee and 6.2% employerr

Worst case scenario, assuming typical 8% average market return, you still get $2k a month over 25 years (plus you get to let the remainder for your heirs), best case $4k a month.

Sounds good, now what would that $2k per month be after inflation adjustments (about $374 in today's dollars) and deferred taxes?

Did you see the accumulation ?

That $2k is only your 6.2% contribution, so it is more likely you'd draw $4k. Since the max payout now is right around $2k and a person making $30k will only draw about $1,200 a month in SS, the worst case is still better.

Plus, until recent market activity, I was seeing 11% to 18%+ return for the people I work with.

Even with government bonds and an average return of 2% in 40 years you'd have $225k with no pay increase and a 2% average pay raise you'd have $322k. If you could get a 11% average return, you'd have $2,600,000.

Did you see the accumulation

Yeah, I did. That $1.2 million in 40 years would be worth about what $216K in today's dollars. At 8% that becomes a bit over $16k per year, before taxes.

For the record, my early retirement is based on my 401(k) and IRAs. I did all these calculations in a variety of scenarios.

The ONLY benefit to SS, IMO, is the insurance portion, which could be addressed with a real insurance policy. Those who can not work a life time would need an alternative source for income. Then again, these folks get a very small payout that IMO isn't enough to live on. I'd need a person familiar with disability insurance to see what they could expect and the cost of such insurance.

The future value calculator I use shows with 2% inflation the $1.2m will be the same as $550K with 2% average inflation and $370k with 3%. Over the last 20 years, inflation has been pretty stable near the 2.5% - 3.0% range.

http://www.usinflationcalculator.com/inflation/historical-inflation-rates/

2000 - 3.4%

2001 - 2.8%

2002 - 1.6%

2003 - 2.3%

2004 - 2.7%

2005 - 3.4%

2006 - 3.2%

2007 - 2.8%

2008 - 3.8%

2009 - -.04%

2010 - 1.6%

Yeah, if you want to use just twenty years, but the build up was over 39~40 years and then has to last another 25.

Don't forget the mandatory withdrawals ramping up, starting at 70 1/2.

These sites do the compounding for you.... Westegg, BLS

I won't even go into what you are referring to as a stable 2.5~3.0 rate of inflation, when medical has risen at twice that rate. If I were a twenty something that 2.5% might be correct, but I know at 61, my inflation rate is 6.74% for the past year, whereas the official rate is 3.6% for the past year.

I see where you're coming from, but still doesn't negate the fact that the max payout for SS is still small.

In today’s dollars, CBO calculates that a single person born in 1960 (assumed to retire at age 65 in 2025) who earns close to median wages over their lifetime is scheduled to receive approximately $250,000 in lifetime Social Security benefits, while a similar earner born in 2000, expected to retire in 2065, would receive around $420,000.

http://motherjones.com/kevin-drum/2010/08/lifetime-social-security-payouts

SCTexan

What is so amazing is when you present facts to the big government lovers it just gets in their way. They refuse to admit that Social Insecurity is a rip off.

I see where you're coming from, but still doesn't negate the fact that the max payout for SS is still small.

It does appear small, but when factoring in rates of return on investment, taxes and then the effects of inflation, the nest egg from a IRA/401(k) has to much higher than most people realize. I remember in the 90s, everyone talked about how the stock market was gaining 10% a year and inflation was only 3%, so an effective return on investment was 7% pre-tax. Then the rule was a 4% withdrawal rate (pre-tax) and everyone was real happy. So a lot of people thought a 7% return and 3% inflation met the criteria. Taken over the last 50 years, the inflation rate is 3.75% and the Stock Market growth was 5.7%, for a rate of return of only 1.95%. (The stock market would have to be around 35,000 for that 4% (pre-tax) to reappear.

A person drawing $1,100 a month current, for 30 years, with average inflation rate of 3.75%, will draw $750,000 over 30 years. To support that $750,000 for that period at an investment return of 5.7%, would require starting with $495,000 in a deferred tax portfolio. (8% return - $369,000)

A person making $20 (plus inflation adjustments) an hour would need to set aside 3.275% at a return of 8% to achieve the $369,000 nest egg.

That same person would need to set aside 8.1% over the same period if the return is 5.7%.