Russell Gloor National Social Security Advisor at the AMAC Foundation
Dear Rusty: You’ve said in the past that most people recoup their SS contributions within five years of starting benefits, thus Social Security “is an exceptionally good deal.” Your calculation is correct but misleading; if it were not, SS would have been insolvent long ago. I will, in fact, get “my” contributions back in about five years, but my employer’s contributions will take another five years, and that is money that my employer could have been paying me, so they are really “my” contributions. But even that ignores the time value of money. I did a calculation as if my contributions, along with those of my employer, were invested in an account earning 5% per year. That would provide me the equivalent of SS income for 24 years, approximately what my life expectancy was when I retired. So, it’s not a bad deal, but it is hardly exceptional. It is roughly the equivalent of me investing that money throughout my career and using the total to buy an annuity.
Of course, Social Security does have the advantage of certainty, at least until it goes broke. My portfolio would not earn a steady 5% every year, though that is at the low end of what financial managers would expect over a long period. And it does force people to save, many of whom would otherwise make no provision for retirement. Signed: Realistic Senior
