Truemors
Ah.. Social Security… It’s
wonderful program that takes 12.4% of your income each year in order to secure
you your future. Let’s analyze Social Security a bit, shall we?
The purpose of Social Security is to help the
average American save money for retirement. Although the funds average annual
yield is 5.3%, it’s backed by the United States treasury, meaning
it’s a guaranteed investment. 5.3% may seem acceptable when compared to the
national average savings account yield of approximately 0.54%, but the truth is
that many competitive money market accounts yield upwards of 5.4% without
locking up your investment until retirement, or jeopardizing your retirement
savings, as nearly every reputable bank is a member of FDIC and have lengthy
histories of customer satisfaction. When was the last time you went to your
local bank and they didn’t allow you to withdraw your money?
Now let’s compare Social Security to a safe
investment in the stock market. History has proven that the safest investment
in the market is the S&P 500 index. This index tracks 500 of America’s most
prestigious blue chip companies and is a sound investment, with minimal risk.
The S&P 500 average annual return on investment is approximately 10.4%
(This figure is based on a 78 Year average). The difference may not seem much,
but it’s gargantuan on a long term basis. See my calculations below:
Scenario:
Let’s say you begin working at the age of 25, and earn $40,000 a year. The
government takes 12.4% of your income every year on social security alone. This
is the actual percentage that they withhold from your income. (Your employer
will adjust your salary in order to cover his side of social security without
spending additional money. The employer pays ~6.2% for your social security and
you pay ~6.2% this will be explained below.) Let’s also assume you retire at
age 65. That’s 40 years of contributing to social security. Let’s see how much
you’ll get back in social security when you retire, and how much you would have
gotten back if you invested the same 12.4% each year in the S&P 500 index
instead.
Social
Security: *$696,699.17
S&P
500: $2,702,720.36
*The social security total is actually higher then it
should be, because I used today’s social security yield, instead of the 50 year
average, which is LOWER the today’s yield.
You may be confused about where the 12.4% was derived from.
The way social security functions is that you, the employee pay 6.2% on each
paycheck, and the employer pays 6.2% on the wages he pays you, the employee.
You may think to yourself that, the 6.2% that the employer pays has no effect
on your salary, but you are mistaken. Your salary is adjusted (decreased) to
cover the employer’s end of social security. This doesn’t apply to all
employees, but Milton Friedman, Nobel Peace winning economist, got several large
employers to admit to using this practice. Let me provide you an example. Let’s
say, as an employer, you want to spend a total of $100 on your employee for his
services. But you know that an additional $6 will be added on top of the base
$100 salary to cover the employer’s portion of social security. Instead of
paying out a total of $106 (100$ to the employee and 6$ to the government, the
employer will instead, pay the employee 95$ as a salary, and pay 5$ on top of
it for the employer’s portion of social security. Now the employer spent his
intended 100$ on the employee, instead of the $106 he would have paid if he set
the employees base salary at $100. Now the employee must also pay a 6.2%
tax on the $95 he earned through wages. If Social Security did not exist, the
employee would have received the full $100 in wages, instead of $95 minus
social security taxes.
Don’t assume that I don’t agree with the general philosophy
of Social Security. The purpose of Social Security is to provide for the
elderly once they retire so that they may sustain themselves. I am not against
its purpose, but I am strongly against the way it’s forced down our throats. If
the money is intended to be spent on your future, why can’t the government
allow you to save it on your own? The only way for social security to function
in an honest fashion is for it to be voluntary. If an
individual wants to invest their money elsewhere, that individual should have
the option to opt out of the Social Security system. The government simply
cannot spend your money in a better fashion FOR you then you can for yourself. An
individual should have the liberty to decide how he chooses to
invest his own money, instead of the government forcefully taking
it and investing it in their place.
The S&P 500 is not a guaranteed investment,
but history has proven it to be the safest investment in the market, and has a
proven track record of 75+ years at an average annual return of 10.4%.
Ultimately, an individual should have the choice of opting out
of government run social security. Countries like Chile, Mexico, Britain,
and Australia
have already transitioned from failing government run social security type
programs to healthier systems based on individual retirement accounts.
Original Article on www.TheLibertarianForum.com
Written by myself. Bookmark us! Original Libertarian Articles, updated daily!
Sources:
S&P 500 Return Rate
http://www.usatoday.com/money/perfi/columnist/krantz/2005-12-22-sp-500_x.htm
Social Security Annual Yield
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