I get why people are afraid of privatizing Social Security. Most people know nothing about investments, and even someone like myself, who has a degree in finance, makes disastrous stock picks here and there.
But to justify privatizing Social Security, you don’t have to assume everyone is an expert investor. In fact, the returns on Social Security are so poor that you’d be better off putting your money into Treasury Bonds, which carry zero risk. The only way you’d lose an investment in Treasury Bonds is if the U.S. Government defaulted – in which case that would be the least of your worries.
And that’s just one year treasuries! Other low-risk investments such as Municipal Bonds (which, like Treasuries, are tax free) offer much higher returns.
University of Pennsylvania finance professor Jeremy Siegel penned a wonderful piece in the Wall Street Journal in December of last year illustrating just how much of a scam Social Security really is.
Last month I turned 70 and, thanks to my earnings, became entitled to Social Security’s maximum benefit, currently $3,500 a month, or $42,000 a year. And so, if I live to 90, I will receive $840,000 worth of (inflation-adjusted) benefits.
Over the past 50 years, according to the Social Security Administration, the combined taxes paid into the system by me and my employers equaled $329,640.
This sounds like a good deal—the benefits I would collect over the next 20 years are more than twice what I put in. But the benefits are only about one-third the $2.27 million I would have accumulated had the taxes instead been invested, over time, in a stock index fund.
Moreover, the benefits I would collect are even less than the $1.28 million I would have accumulated if my “contributions,” as Social Security taxes are euphemistically called, had been placed in U.S. Treasury bonds. This number is particularly important, because the Social Security Administration bought government bonds with my (and others’) taxes to build up its trust funds. In effect, the government made almost one-half million dollars more on my Social Security taxes than they will pay me if I live another 20 years.
Social Security is a scam – and it’s a much more expensive scam then the government would like us to believe.
H/T Unbiased America
If given the option, would you opt-out of Social Security? Let us know what you think in the comments!