Social Security example

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David S:
Social Security example

Since 1972 my contribution to Social Security has been $93,000.
My employer, as required by law, contributed an equal amount for a total of $186,000.

Adjusted for inflation that amounts to approximately $270,000 in 2003 dollars.

If the money had been invested at 5% compounded interest it would be worth $356,000 today

If it had been invested at the going rate for AAA corporate bonds it would be worth $556,000 today

If it had been invested in stocks with returns similar to the NASDAQ it would be worth $913,000.

Now here's a problem for the math/computer wizards.
Assume David S had been able to invest his money in AAA corporate bonds instead of SS so that today he had the $556,000. David's evil twin, Opibo insists that social security is better and puts his money there. Both retire this year so they no longer contribute to SS. Opibo is not eligible to collect Social Security until age 62 in 2011, at which time he will receive about $15,000. That amount is projected to increase 2% per year.

David invests his $556,000 in corporate bonds which pay about 5%. In 2011 Opibo begins collecting Social Security and David begins withdrawing an equal amount from his investment.

Assuming both of them live to be 100 in 2049 how much will each of them have collected? How much if any will David have in his investment account? Where would you rather put your money?

Disclaimer- The names and places used in this story are fictious. Any similarity to persons living or dead is purely coincidental. :)


Wakie:
You know the British have a private version of Social Security and, I'm told, it is failing quite miserably.

Here's the cold hard reality.  If you need social security then you aren't competent to manage your own money and will probably lose it in a privatized system.

David S:
Quote from: Wakie on January 31, 2005, 05:12:58 PM

You know the British have a private version of Social Security and, I'm told, it is failing quite miserably.

Here's the cold hard reality.  If you need social security then you aren't competent to manage your own money and will probably lose it in a privatized system.



Is protecting incompetents a justification for punishing those who are competent? Are you convinced that people are incompetent children who cannot possibly manage their own money? Do you really think that government (the same people who created a $7 trillion debt) are better able to do so?

Anyway you did not answer the questions. Its a simple  task on a spreadsheet.

The Duke:
Actually the cold hard reality is that if you need social security its because you have no disposable income to invest because you're poor.

As for Britain, the system has been a success not a failure, increasing the level of wealth available to seniors through superior rate of return, and for the New Labour to become competitive in the mid-nineties, they had to endorse the Thatcher pension reforms much as Eisenhower Republicans had to endorse the New Deal to become electable.

muon2:
Quote from: David S on January 31, 2005, 05:30:20 PM

Quote from: Wakie on January 31, 2005, 05:12:58 PM

You know the British have a private version of Social Security and, I'm told, it is failing quite miserably.

Here's the cold hard reality.  If you need social security then you aren't competent to manage your own money and will probably lose it in a privatized system.



Is protecting incompetents a justification for punishing those who are competent? Are you convinced that people are incompetent children who cannot possibly manage their own money? Do you really think that government (the same people who created a $7 trillion debt) are better able to do so?

Anyway you did not answer the questions. Its a simple  task on a spreadsheet.


The states and federal employees don't use SS. Many states and the feds have plans that protect both groups. You can choose a pure defined benefit plan, or a defined contribution with options as to the amount of self-management to use.

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