Opinion Editorial | |
| Monday, December 7, 1998 | |
Social Security Benefit Statements Show Unhappy Returns
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Tomorrow, President Bill Clinton hosts a White House conference on Social Security, the culmination of his oft-stated promise to "save" the retirement system. In truth, Social Security does not need to be saved. It is in no imminent danger of collapse and no current retiree's benefits are in any way threatened. The real problem with Social Security is that it is a terrible deal for almost everyone presently working. Until 1949, the Social Security tax rate (OASDI) was just 1 percent on employer and employee on the first $3,000 of wages. Today it is 6.2 percent up to $68,400 of earnings. As a consequence, some workers today pay more Social Security taxes in one year than many early retirees paid in their entire working lives. In an effort to convince people that Social Security is still a good deal, the Social Security Administration now sends out personal statements telling people what they have paid in and what they will get at retirement. I received one just recently. It says that through 1997 I have paid in $47,576 to Social Security and can expect a monthly check for $1,540 at age 65 (see figure). To many, this may sound okay. But certain facts are left out of the statement that could change their minds. First, it lists only those taxes paid by me as an employee, omitting those paid by my employers on my behalf. Since all economists believe that the employee actually pays all the tax in the form of lower earnings, my true Social Security contribution was $95,152. Second, there is no indication of what the alternative might be. According to my calculations, had I steadily invested all my Social Security taxes in a S&P 500 index fund since 1968, when I entered the labor force, I would have had $464,655 by the end of 1997. If I never paid another penny into that fund and it simply got the same compounded rate of return that existed from 1968 to 1997, this fund would grow to $4,070,400 by 2016, when I will turn 65. Even if I just took the money Social Security had collected through 1997 and invested that money the same way, I would still have $833,536 by 2016. Clearly, either alternative would pay me vastly more than what Social Security is promising me. And I would never have to pay Social Security taxes for the rest of my life to achieve it. Adding future contributions to the calculation would increase these estimates several times. As workers compare their Social Security accounts with their 401(k) accounts, more and more of them undoubtedly will decide that the time to privatize Social Security has come. Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, December 7, 1998. Home | Support Us | All Issues | Social Security Debate Central | Contact Us |
