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National NewsConservative News
Social Security is Stealing Our Future
By Brad Taylor
Posted on: December 19, 2004
Given President Bush's recent emphasis on reforming Social Security, the AARP and capitol Democrats are starting to wage a campaign against reform. The problem is, their campaign is against working Americans and their families in favor of older citizens.
Let's set aside the demagoguery and usual double-speak used in discussing Social Security. Politicians won't use straight talk when talking about Social Security, because to do so would ensure defeat at the polls.
Social Security is robbing Americans of their future, because it forces all workers to paying into a socialist program that promises a very dismal return. This is a promise that will not be met for younger Americans if the system is not fixed.
The San Francisco Federal Reserve Bank (SFFRB) examined the real returns American can expect based upon their income, race, and gender.(1) For our example we are going to examine the returns that our subject, Larry Loser, can expect from social security. Larry Loser is very middle American, being 20 years old, earning $40,000 per year. Larry Loser is truly a loser, because he never gets a raise throughout his life. This will understate our results for most normal Americans that continue to earn more each year.
Panel A from the SFFB study depicts the real rates of return a worker can expect from Social Security. In our example, Larry Loser falls on the dotted line, indicating he can expect his rate of return to be 1.5 percent. This return is based on Larry's payments and on his expected SSI checks he will receive once he reaches retirement ages.
The government taxes both the worker and the employer on behalf of the worker at a total rate of 12.4% of the employee's gross salary up to $72,600. For many individuals, these contributions represent the most important (and perhaps only) investment they will make to provide financial support for themselves during retirement.
If Larry stays employed from age 20 to 60, he will contribute $4,960 per year for 40 years. Since we have determined Larry's rate-of-return is 1.5%, Larry can expect to earn $269,169 if his returns are compounded annually.
If Social Security is reformed where Larry can invest his money in a private account, he could earn a much higher rate of return. Larry chooses to invest in a conservative stock mutual fund, like Vanguard's Windsor Fund, which has earned about 13% per year since 1985. Instead of $269,168 from Social Security, Larry would now have $5,027,973 (see Panel B).
Even if Larry did a poor job investing his money and earned only 6.5 percent (a rate below the average stock market returns), he would have $871,134.
The bottom line is that the lack of Social Security reform is costing Larry Loser $4,758,804. In fact, the lack of Social Security reform is making all of us losers in order to maintain a welfare program for the old. Unfortunately, the reform package Congress approves will not likely allow us to actually achieve investment returns like these.
The AARP and the Democrats are robbing our future by blocking Social Security reform. Now we all have four million reasons to tell our Representatives and Senators to complete a reform package now.
(1) The SFFRB study can be found at:
http://www.frbsf.org/econrsrch/wklyltr/wklyltr99/el99-34.html
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