Today's myth is the long standing misbelief, established by the political class, that the Social Security system is a great financial plan for Americans and that investment of our Social Security taxes in the stock market is a stupid idea. By keeping this myth alive, the political class can continue to plunder our paychecks and keep tight control over our retirement income, reducing every American's freedom.
However, if you look at your individual situation, you are likely to find the same results that I found. I took my entire Social Security history, as provided by the Social Security Administration, and developed a simple economic model to estimate what would have happened to my retirement savings if I had been in control of my life time historical Social Security payments and not the government. My assumptions in the model are quite straightforward:
- I calculated what I paid into the system every year from the first year I started earning a paycheck and then doubled it to account for the same amount that my employers paid into the system in my name.
- I assumed that I saved this entire sum in a non-taxable, IRA-type account from the very beginning.
- I assumed that this account took my earnings and invested them in an S&P stock index mutual fund that earned exactly the returns of the S&P index over the past four decades, i.e. horrors of horror, I invested in the stock market.
- I assumed that I saved in the S&P fund until I was 56 years old (2009) and then converted the accumulated funds into a conservative bond fund that earned 4% a year, a standard move to do, get more conservative as you approach retirement.
- As I withdrew money from the account, I assumed the remainder in the account would continue to conservatively earn 4% a year until there was no money left in the account.
- The Social Security Administration estimates that I would receive about $1,300 a month or $15,600 a year if I retired at age 62.
- I assumed I would start withdrawing money from my theoretical account at age 62.
The output of the model are very interesting. By ignoring the myth from the political class that investing my Social Security earnings in the stock market is a death knell economically, my simple model shows that by following the investment path above, I would be able to withdraw $31,200 a year, every year, from age 62 until I was 102 years old. Thus, I could have doubled what Social Security will be paying me if the political class had allowed me to control my own retirement plan from the beginning. Although my retirement savings would run out when I was 103 years old, that would be a chance I would be willing to take.
Another run of the model assumes that I withdraw $39,000 a year from this theoretical retirement account, or two and half times what the government will be paying me in retirement. In this case, I run out of money when I am 87 years old. I little riskier but other savings could more than make up the difference if I lived beyond 88 years old (personal savings, house equity, 401k plans, other IRA plans, etc.). Up until 88 years old, I have two and a times more money than what the government will pay.
Thus, the myth that Social Security investment in the stock market, the option that the political class loves to demonize, is a fraud and a lie, at least for me. Since I consider my self pretty typical middle class, I would bet similar results would occur for most Americans. Not only would I have more wealth in retirement, the wealth would be under my control and in my accounts. I would not be subject to the whims and actions of the political class as they manipulate the rules and payouts of the system. It's called freedom and the political class hates it when citizens have control of their personal destiny.
But someone might say that they find investing in a stock index fund as being too risky for them. Let's give them control of their money but invest it in one year T-Bills and see what happens. I reconfigured the model to include the annualized payout in one year T-Bill over the past four decades instead of the S&P index historical results. The model handles the calculation easily and shows that if I had been able to keep all of my Social Security earnings in a one year T-Bill account, and left the other assumptions the same as above, I could withdraw $20,800 a year, or 33% more than what Social Security will pay me, until I was 95 years old. I could withdrawal $23,400 or 50% more than what Social Security will pay me, until I was 88 years old. I could then use other savings to cover my expenses if I lived beyond 88 years old. In this case also, I would control my earnings in my account, and would get substantially more than what the government will pay me under he current system.
The other good thing about this approach is that in either case, S&P or T-Bills, if I should die before I use up my funds, I can designate where the remaining funds will go to (e.g. heirs, charities, etc.) since the remaining funds are in my account, the government is not holding onto them. In other words, I have the freedom to move my earnings to where I want them to go, not some government agency bottomless pit.
Alas, the government and the political class never gave me these options. They forced me to handover my earnings and the earnings of my employers in my name, to a government program that is rapidly approaching insolvency. In the process, they restricted the life style choices I would have been able to make in retirement, they control my retirement earnings, they pay me less than what I would have earned if I had kept my earnings, and they control my earnings even after I have passed away.
While we can now consider the myth destroyed, having control of our Social Security earnings for our own investment in either the stock market and/or T-Bills would have been much better option than participating in the Social Security program, the truth is we cannot go back. However, Steps 10, 11 and 12 in "Love My Country, Loathe My Government" are the three steps necessary to do a short term fix on the current system in order to prevent its implosion. Once these three steps have been implementer and the current system stabilized, we can only hope that analyses like the above can be deployed and implemented to return control over Americans' lives and their retirements to themselves and break the contract with the political class that has enslaved and worsened the economic retirement lives of most Americans for decades.
Our new book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.
Also visit the following sites for freedom:
http://www.cato.org/
http://www.reason.com/
http://www.robertringer.com/
http://www.realpolichick.blogspot.com/
http://www.flipcongress2010.com/
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