NCPA - National Center for Policy Analysis

Retirees Worse Off Because Of Social Security

June 7, 2000

President Franklin Roosevelt sold his Social Security program to the American people in part on a promise that it would provide benefits "at least as good as any American could buy from a private insurance company." It certainly hasn't worked out that way, according to a new study by Cato Institute benefits expert Michael Tanner.

  • Social Security benefits for a minimum-wage worker amount to only $6,301 a year -- well below the poverty level of $7,990.
  • Had that same minimum-wage worker been allowed to invest his payroll taxes in real assets, he could receive a retirement income of $20,728 a year.
  • The Social Security Administration puts the program's return for workers born in 1960 at a mere 2 percent.
  • But the average return on stocks since 1926 -- a period that includes the Great Depression -- has been nearly 8 percent annually.

Tanner points out that a number of experts think the mere existence of Social Security discourages workers from saving on their own -- perhaps by as much as a dollar for every dollar of expected benefits.

Then there is the matter of Social Security's basic unfairness. Today's retirees paid lower taxes and will receive greater benefits than younger people paying into the system. Since those who live longer will get more out of Social Security than those who die early, the program is unfair to the poor and minorities -- who have shorter life expectancies than better-off whites.

Source: Michael Tanner, "'Saving' Social Security Is Not Enough," SSP No. 20, May 25, 2000, Cato Institute, 1000 Massachusetts Ave., N.W., Washington, D.C. 20001, (202) 942-0200.

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