From: "Cal Lester" 
Newsgroups: misc.invest.financial-plan
Subject: Re: ROI on Social Security -- Now NEGATIVE?
Date: 1 Jul 2004 15:35:12 GMT
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> This is an excellent point and one not well understood by the average
> American when he engages in financial planning for retirement. Looking at
> Social Security as an investment vehicle, people who were born, say, from
> 1880 to 1945 got an AMAZING return on their investment. The payroll tax
> was minimal, and benefits were generous -- especially for non-working
> spouses who qualifed for a derivative benefit. When benefits were indexed
> to inflation in the early 70s, the deal got even sweeter. All of this with
> ZERO investment risk and an insurance component thrown in to boot!


                As an aside, PRIOR to my own "retardment", I once
                calculated that My parents had already received MORE
                in S.S.  benefits than both they & I had ever contributed
                to the S.S. system. Since that time (I retired at age 62)
                I have already received double that amount...............

Cal Lester CLU (retarded)





>
> Of course, as Mr. Zollars noted, Social Security was never an investment
> at all. (Despite the misleading language used to explain it. Language that
> to this day confuses people into thinking there's a cubbyhole someplace
> with "their" taxes saved in it.) Rather, it was a intergenerational chain
> letter. But the demographics of the post-war era (and rising productivity
> too) kept everything humming. Sure, the ROI for some people was better
> than for others. (Lower-paid workers, for example.) But for decades
> *everybody* got a VERY nice ROI. No wonder Social Security became such a
> wildly popular program.
>
> > Well, the baby bust and extended life expectancies have changed the
> > underlying economics more than a bit, which is why we have seen
> > payroll taxes and the SE tax go up dramatically.
>
> Here's another aspect of this that cries out for more data. As we all
> know, Social Security has always been quietly progressive -- in that lower
> paid workers get a better ROI than higher paid workers. But so long as
> everybody got a decent ROI, nobody complained. I've read some things that
> suggest that this might not hold going forward. Starting with the
> Greenspan Commission in 1983, the Baby Boomers will be the first
> generation of Americans who will have to pay for the retirement of the
> generations ahead of them AND their own generation. Moreover, the Social
> Security payroll tax has become ever more punitive to high income workers
> in the past 20 years. For example, the earned income cap at which the tax
> ends is going up faster than inflation -- not to mention the rate of tax.
> And, of course, the retirement age is gradually being raised.
>
> Consider, for example, a worker born in 1960 or 1970 who pays the maximum
> Social Security tax for most of his working life. It is possible that the
> ROI for this worker will be NEGATIVE? I'm not talking about future Social
> Security changes. I'm talking about under *current* law. Anybody have any
> data on this?
>