Comments on: Social Security is worth $225,000 for a typical retiree http://www.doughroller.net/retirement-planning/social-security-is-worth-225000-for-a-typical-retiree/ Money Management and Personal Finance | The Dough Roller Thu, 11 Mar 2010 16:33:49 -0800 http://wordpress.org/?v=2.8.4 hourly 1 By: Adfectohttp://www.doughroller.net/retirement-planning/social-security-is-worth-225000-for-a-typical-retiree/comment-page-1/#comment-4808 Adfecto Fri, 01 Feb 2008 19:55:25 +0000 http://www.doughroller.net/2008/02/01/social-security-is-worth-225000-for-a-typical-retiree/#comment-4808 Thanks for posting this information. I am still young (24 years old) so I fully expect social security to change A LOT from now until I retire. A 25% reduction in benefits seems like almost a certain change but maybe even more. Based on the present numbers it seems the social security isn't nearly as big a rip off as I had thought. Paying 6.2% of your gross earnings over your career gives you 28% back every year for life.I ran some of my own numbers and assuming both no investment returns and 8% return on contributions. Based on my salary projections, of $97,500 (the Social Security ceiling for 2007) and adjusted to inflation $299,000 by 2045, I will pay $437k into social security before I hit retirement at age 62. Assuming an 8% return that money would compound to $2.18 million dollars.If I get 28% of my final salary in social security payments it would cost $2.07 million dollars to buy an equivalent annuity. In other words, I only loose about $110k or 5% of the compounded value ($2.18 million) of my contributions. In return for that 5%, I also get the disability and life insurance benefits.If benefits are cut 25% and I only get 21% of my final salary it will be a loss of $630k or 28.9% of my compounded contributions. That would be a pretty terrible return but concerning the lack of risk it would not be complete larceny either.In the end, social security is not as big a rip off as I had thought, even for those at the top end of the earning scale like I am.About SS reform: I don't think creating private accounts will do anything to improve the system because all it would do is shift the risk from the government to the individual. Beating the return on social security would mean too much risk for very little extra return for most low income Americans. Demographics and increased productivity will be the only ways to make the Social Security picture any better than it is today. Thanks for posting this information. I am still young (24 years old) so I fully expect social security to change A LOT from now until I retire. A 25% reduction in benefits seems like almost a certain change but maybe even more. Based on the present numbers it seems the social security isn’t nearly as big a rip off as I had thought. Paying 6.2% of your gross earnings over your career gives you 28% back every year for life.

I ran some of my own numbers and assuming both no investment returns and 8% return on contributions. Based on my salary projections, of $97,500 (the Social Security ceiling for 2007) and adjusted to inflation $299,000 by 2045, I will pay $437k into social security before I hit retirement at age 62. Assuming an 8% return that money would compound to $2.18 million dollars.

If I get 28% of my final salary in social security payments it would cost $2.07 million dollars to buy an equivalent annuity. In other words, I only loose about $110k or 5% of the compounded value ($2.18 million) of my contributions. In return for that 5%, I also get the disability and life insurance benefits.

If benefits are cut 25% and I only get 21% of my final salary it will be a loss of $630k or 28.9% of my compounded contributions. That would be a pretty terrible return but concerning the lack of risk it would not be complete larceny either.

In the end, social security is not as big a rip off as I had thought, even for those at the top end of the earning scale like I am.

About SS reform: I don’t think creating private accounts will do anything to improve the system because all it would do is shift the risk from the government to the individual. Beating the return on social security would mean too much risk for very little extra return for most low income Americans. Demographics and increased productivity will be the only ways to make the Social Security picture any better than it is today.

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