Just out of curiosity, I decided to calculate the (potential) Return on Investment (ROI) (before-tax) for the social security income I just may begin collecting in 2002 upon reaching age 62.5 years. Assuming a 1.75% COLA, here are the results:Live to be:___________ROI (nominal, before-tax): 75 years_________________5.86% 80 years_________________6.86% 90 years_________________7.78%Anyone else done this? The results are not really as bad as I expected. In addition, this doesn't include any suvivor benefits that my wife may receive.FoolishProf
Currently, except for a $275 burial allowance (maybe), you wife receives nothing, except her own SS payment, after you die.Zev
When I buried my Father in 1990 I got $120 and an additional $65 for being a vet. Big deal.
zgriner: "Currently, except for a $275 burial allowance (maybe), you wife receives nothing, except her own SS payment, after you die."</i.This does not sound correct to me, unless I am misunderstanding "her own SS payment," although the age of the widow will matter.My understanding is that at retirement age a widow is entitled to the greater of her own SS payment (i.e. based on what she paid into the system) or her widow's share of deceased H's SS (which I believe is one-half of H would get were he still alive).Seems me me that it should both, if were anything other than a wealth redistribution system. Just my $0.02. Regards, JAFO
zgriner is COMPLETELY WRONG regarding Social Security payments to widows. COMPLETELY WRONG. In a traditional couple where the wife never worked outside the home, the couple will receive 150% of what the husband would get if single. If the wife has worked outside the home and would get more than 50% of the husband's benefit on her own, then they get that. Once the husband dies, the widow gets 100% of the husband's benefits.Go to www.ssa.gov for details.I have to say I get extremely angry when people try to spread lies and misconceptions about Social Security benefits. We all know the law may change, and I think demographics will force it to. In the meantime, it is just contemptible to disseminate falsehoods.
To JAFO,I did mean the greater of her own payment vs 50% of her husband's.To JABO,There is no need to get into a huff. I was unaware that at a spouses death, the widow(er) gets 100% of the spouses benefit, if it is greater. I assumed their payment would not change. No "lies or misconceptions" were intended.Zev
Hey, folks. I didn't mean to start a fight here! The point I really wanted to make was not mentioned by other posters: my expected returns on Social Security are really not so bad after all, not nearly so bad as "rumor" would have it. I, along with others in my circles, seem to automatically "bad mouth" the Social Security system. Certainly it's not going to return for me the gains I'll get from my Vanguard 500 Index Fund 403b(7) or my after-tax equities or even my Lincoln National G&I fund. But, the risk involved has not been so great either for a 6% to 8% expected return. It's also a bit of income insurance for my widow should I die first, as has been noted. Since she has been a homemaker and mother with very little paid into the system, I really like this feature.P.S. I'm glad we got this suvivor-benefit thing out in the open. Obviously there were some misconceptions.FoolishProf
zgriner, yes there is need to get into a huff. Even though we are amateurs, in my opinion we have an obligation to give the most accurate information we can. I don't know how many people read this board without posting, but I bet it is thousands. It is positively harmful to post wrong information, especially on a topic that represents as large a fraction of our national budget as social security. You shouldn't assume anything. You should have your references in front of you. If you don't know the facts, don't say anything.I should say that I think your advice on the CC board and elsewhere has been very useful. This proves you can do better. Do better.Grrrr.
Hey, folks. I didn't mean to start a fight here! The point I really wanted to make was not mentioned by other posters: my expected returns on Social Security are really not so bad after all, not nearly so bad as "rumor" would have it.It's good that you got a good deal on this program. Unfortunately, you will be one of the last ones to get a good deal. The problem with the Social Security system is not what is happening today with the program, but what will happen 10-15 and 30 years from now. By the time I retire, I will be one of the first generations to pay fully 12.4% my entire working career (previous generations started paying in a lower rate, which gradually increased over their lifetimes). In addition, there will be a hidden cost of 2-4% of payroll which will be required to pay back the principal and interest on the Social Security trust fund bonds. It is estimated that the government will need to draw down these bonds in 10-15 years.Don't let anyone fool you. The Social Security trust fund is not an asset, but an additional liability against the Treasury which future workers must pay back. If I calculate all the money I will put into the system, not only will I not receive "S&P500" returns on my investment, not only will it be lower than the Treasury bond rate, it will be NEGATIVE real rate of return (assuming I live long enough to even collect). I am willing to accept a lower rate of return for less risk. However, a system that returns a negative real rate of return is unacceptable.rustedSoul
rustedSoul, you sound as though intellectually you understand that there is no account with your name on it and money in it for Social Security, but viscerally you wish there were.The way I see it, all my tax dollars go into a single big bucket, and attempts to segregate Social Security are just accounting puffery.It is quite conceivable your contributions will exceed your benefits. I did a calculation once and it appeared that yearly benefits max out for someone whose income has been $48,000 in today's dollars. Since the maximum income for FICA this year is $72,600, you can see there is a gap. On the other hand, the amount you have to earn to collect the Social Security minimum payment is quite small. This is important for badly paid people like nannies and day care workers.So, the formulas for Social Security payments are redistributive. If you dislike them enough, maybe you want to run for office with some Scrooge-like slogan (Are there no prisons? Are there no public workhouses?).If you believe in the single-bucket theory of taxation, then it seems to me that the calculation of return on investment in Social Security makes no more sense than ROI on the State or Veterans' Affairs departments. That's my take, anyhow.
Those are the results for the "winners". The people who die before receiving a nickle get nothing. When the retirement age was set at 65 in Germany years back, the life expectancy was 62. The rates of return you calculate aren't exactly like winning the lottery, and a lot of folks never get anything at all!
The people who die before receiving a nickel get nothing.Well, they don't because they are dead. However, surviving spouses and minor children get survivors' benefits. I haven't been able to pull up formulas from the Social Security Web page on this one. However, a widow can start collecting based on what her dead husband would have got (and similarly for a widower) starting at age 60. If she does not wait till age 65, there will be an offset. The language is pretty murky, and I couldn't figure out what dependent children get, or for how long.Anyhow, the notion that surviving spouses will not get Social Security payments because the dead spouse had not started collecting, is yet another falsehood that some people seem to like to perpetrate.
<<<The people who die before receiving a nickel get nothing.>>>"Well, they don't because they are dead. However, surviving spouses and minor children get survivors' benefits."Lots of people die without either surviving spouses or minor children.I believe that monir childen receive benefits to at least age 18 (unless maybe they maay before 18 or otherwise gain independent status); I am not about 18-21 or post-secondary educatin expenses.Regards, JAFO
Thanks for the clarification. I've paid maximum social security for almost 40 years; my spouse gets social security based on own income. I've figured that for my spouse to get a raise when I start drawing social security, I'd have to work to almost age 70! There aren't any minor children, so if I retire before drawing anything, all my contributions are down the drain!
Since I am 26, I am in line to get royally screwed. Every projection that I have seen shows me heavily in the red. Everytime I hear someone defend SS as a wonderful program, I get seriously annoyed. SS is nothing put a Ponzi/Pyramid Scheme. Everytime we have had a SS crisis, instead of reforming the system to prevent generational inequities, taxes raised making things worse for future generations. And even now, Clinton has opposed any change in the structure of SS, and his solution has been to pump more money into it. Therefore to preserve a benefit for those that paid in little, I get to pay more.And it is not as if there are no other options. In 1981 Chile adopted a private system to replace its public one pot system, which was going bankrupt for the same reasons as our social security system. 18 years latter, the only weaknesses of the system are from the legislation that set up the system. Under the system, everyone that participates is guaranteed a minimum benefit, gets life and long-term disability insurance, and the accounts are portable between qualified managers. Since it has started, early retirement is up, people are getting a better annual benefit, and there is a large pool of local money for investments. All this and a 10% mandatory contribution. Sign me up.If you go to http://www.socialsecurity.org (the Cato Institute's site advocating SS privatization) there is a benefit calculator. With a plan similar to the Chilean System and very conservative projections, I could easily expect between 2-6x the income, depending on investement types.jbw
Since I am 26, I am in line to get royally screwed. Every projection that I have seen shows me heavily in the red. Everytime I hear someone defend SS as a wonderful program, I get seriously annoyed.zorloc,I share your frustration with this program's financing.Unfortunately, there are very powerful contituencies who are against your interest because oddly enough they have do not see any issue with how much this system costs, or how equitable it is.Another major concern is that they want the system to be "fair" so that no one can do "well". Honest. They don't want you to do better because it might come at the expense of someone else. (In the current funding scheme this concern is actually valid because there is a "pot" of money that is fixed. If you get more someone WILL get less. A system with real saving and investment does not have this problem).Unless something is done to fix Social Security and Medicare, or if the economy does exceptionally well in the near future, both of these programs are going to start going bankrupt in the next 15 years (This is not I talking, this is the Congressional Budget Office's own projections which are available at http://www.cbo.org/showdoc.cfm?index=1386&sequence=0&from=7 ). Part of Medicare is already bankrupt and has been propped up with general tax revenues. If a new prescription drug benefit is approved, count this as another straw to assure bankruptcy sooner.Take control of your own financial future. You do not want to be working 15 years from now when the inevitable huge tax increases will be levied to bail out these bankrupt programs.rustedSoul
Since I am 26, I am in line to get royally screwed. Every projection that I have seen shows me heavily in the red. Everytime I hear someone defend SS as a wonderful program, I get seriously annoyed. zorloc, I share your frustration with this program's financing. Unfortunately, there are very powerful contituencies who are against your interest because oddly enough they have do not see any issue with how much this system costs, or how equitable it is.As a fellow 26 year old, please allow me to point out one basic fact. The "problem" we have is that those who currently benefit and will soon benefit from the current system of SS (the powerful constituencies) either outnumber us or vote in larger percentages than us (or more likely both, don't have any numbers in front of me). So, since we will probably be out-voted on any substantive changes to SS I am following the advice that I read somewhere on this site in regards to calculating the money you will need and have during retirement.paraphrasing..."then add in your expected benefit from Social Security (may I suggest ZERO)..."Personally I am planning on receiving nothing from SS and if I do happen to get some, then its just gravy.pikapp383p.s. It helps me to think of my SS deductions as going to help take care of my grandmothers, that way I don't get as frustrated.
pikapp383 writes,I am following the advice that I read somewhere on this site in regards to calculating the money you will need and have during retirement.paraphrasing..."then add in your expected benefit from Social Security (may I suggest ZERO)..."Personally I am planning on receiving nothing from SS and if I do happen to get some, then its just gravy.Excellent advice! I'm 43 and using a Social Security benefit of $0 for my own planning.If you're fed up with Social Security taxes, there's a solution. Stop working and retire early. I did this five years ago. Many folks don't realize that interest, dividends, capital gains, and pension and retirement plan distributions are all exempt from FICA and Medicare taxes. It's certainly possible to cobble together enough to live on from these sources if you have a modest lifestyle.intercst
It helps me to think of my SS deductions as going to help take care of my grandmothers, that way I don't get as frustrated. This is a great point! I consider our SS withholding not as a retirment plan, but as a gift to my elders. I don't expect SS to benefit me at all. For now it is helping take care of peoples grandmothers, people who fought wars for us and sick people who otherwise don't have anyone to look out for them. Call it Cash Karma, if you gladly give it away, it will come back to you 10 fold!GoodJoan
Since I started this thread, I'll jump back in. I agree that social security is turning out, in the long run, to be a horrible mess. But of course, I'm not going to refrain from applying for mine. As someone has already stated, I will be one of the luck last to draw and will, in fact, get back more than I contributed. I'm a Nam vet and turn 59 on Oct 16, 1999.Currently my preferred "fix" is the "fair tax" plan now being put forth by Hon John Linder from Georgia. If the published figures are correct on this plan, no more withholding, FICA or otherwise, would be required. There would be no income tax, capital gains tax, nor inheritance tax. In fact, there would be no other federal tax at all. A 23% federal sales tax, with standardized refunds based on family head count to cover taxes on essentials, would be enough to cover all existing federal programs. It obviously shifts the tax from savings to consumption. It would also keep me from having to develop various strategies for leaving something to my offsprings and grandoffsprings without Uncle Sugar getting a big chunk.Probably will not fly since it cuts out ALL special interests and tax dodges that are built into the present system.FoolishProf
If you're fed up with Social Security taxes, there's a solution. Stop working and retire early.I agree. I started 3 years ago to aggressively work towards this goal. I have been pleasantly surprised how much success I have had so far. I probably need another year of saving and investing, although I could probably quit right now.There is one side effect that results from doing this though. It demonstrates the insidious incentives of the Social Security system:A workers benefits are based upon lifetime earnings. A worker with low lifetime earnings (which would be the case for a person retiring very early) will likely get a good benefit because the system's progressive benefit scheme will judge you to be most needy! Oddly enough, this worker will be the MOST likely to get anything out of this system when retirement comes since the government won't cut the benefits of those deemed "needy".So, it pays to invest aggressively and retire early. You are increasing your chances of getting a Social Security benefit. intercst, don't you feel guilty that you have already "beaten" this system at the expense of those continuing to work? ;)rustedSoul
rustedsoul asks,So, it pays to invest aggressively and retire early. You are increasing your chances of getting a Social Security benefit. intercst, don't you feel guilty that you have already "beaten" this system at the expense of those continuing to work? ;)rustedsoul,It's a tough, nasty business, but someone has to step forward as an example to others. <vbg>On a more serious note, I suspect that when I'm ready to collect in 2018 or so there will be some form of "means test", so I may get nothing at all. Of course, I am benefiting from from the fact that in the meantime, as long as I avoid wage and salary income, I don't pay any FICA.You correctly, and astutely, point out that someone who manages to remove themselves from the workforce at a young age will likely collect a larger percentage of his contributions than an individual who works like a dog until age 65. Yet another cruel irony of the system.intercst
I think it was Tim McCarver who said, "If you don't have something to say, don't say it."
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