Why Social Security Sucks

Ok, the average American makes about 45k a year. Uncle Sam forces you to pay 6.2% of your income to Fica, aka Social Security. Uncle Sam also forces your employer to match that 6.2%, also contributing it to Fica on your behalf. Thus, 12.4% of your income is contributed to social security. Assuming you are the average American making 45k per year, you contribute roughly $100 into the social security system each week. That’s alot of dough.

Assuming you work from age 22 to age 62 (40 years of service) and never get a raise, you have contributed $192,000 towards the government’s mandatory retirement plan. Then you retire at age 62 and live to be 77.8 years old, all the while drawing about 30k a year from social security. However, while you are retired, you will probably have to liquidate most of your assets for living & healthcare costs, because 30k per year isn’t much money. When you die, social security stops and your withdraws have totaled approximately $480,000. That calculates out to be a 4% return on the money you have contributed to social security. At the time of your death, whatever assets you have will be held against your debts, and whatever remains is passed on to your heirs.

Now, let’s pretend for a moment that the government did not force you to participate in social security. Instead, you contributed the same money into mutual funds via Roth IRAs & 401(k)s. You invest the money, gaining a 12% annual return (the average of the US Stock Market since its inception), over the same 40 year time period. At age 62, you will have invested the same $192,000 into retirement, however instead of $480,000 in retirement funds, you would have 10 times that – over $4.7 million! Thank you compounding interest. Now you retire at age 62, live off of 5% of your investment ($230,000 per year!!!), and your nest egg remains untouched. Thus, you die leaving your heirs with $5 million buck in inheritance.

To summarize:

• Social Security: $192,000 @ 4% = $480,000 / 30k per year at retirement / $0 left at death.
• Private Retirement: $192,000 @ 12% = $4,752,000 / $230k per year at retirement / $5 million left at death.

That is why Social Security Sucks.