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Social Security’s Raw Deal For The Poor | Stock News & Stock Market Analysis

Entitlements: Social Security recipients, especially those with little money in the bank, got a little bit of good news last week: Their checks will go up about 2% this year. Congratulations, but too bad that money wasn’t invested in the economy instead.

Maybe a 2% raise doesn’t sound so bad, but consider this: It was even less than the 2.2% estimated last summer, and that tiny 2% rise was the biggest gain since 2012. Moreover, when you consider that the main stock market indexes have risen more than 20% over the past year, it’s not such a flattering comparison.

XAutoplay: On | OffAn unfair comparison? Maybe. But the fact is, Social Security has been a terrible investment for most Americans from a financial standpoint. Most Americans would be better off if they invested their money not in the federal bureaucracy but in the private economy.

A recent report by the Foundation for Economic Education shows this to be true, and not just for the rich, but even for minimum wage workers. Using the Social Security Administration’s own calculators, economics writer Tom Eddlem compared theoretical returns for minimum wage workers on Social Security with those in a fund linked to the S&P 500 index.

What he found was, in a word, shocking: “In every conceivable scenario, the private fund pays more than Social Security to the minimum wage worker.”

As an example, someone working 50 weeks a year, 40 hours a week at the minimum wage, starting in 1970 and retiring this year, investing his or her money in the private fund instead of Social Security, would end up with $262,551.02. And that’s after he or she purchases a term-insurance policy that could go to an heir in the event of death.

For the last 50 years, the S&P has grown at about 11% a year, with 4% inflation. So at that growth rate, even taking out 7% of the total a year, the fund would fully replenish itself, while paying out over $1,500 a month to the recipient.

Social Security? It pays $974. More than a third less.

You can run the numbers many ways, but it comes out the same: Private investments do better than the government alternative. In some cases, way better. For instance, consider a couple who both earn the minimum wage over the same time. Their private benefit would average $3,159.36 a month, a hefty sum. Social Security: $1,948.

The point is, we’ve been sold on the idea that Social Security is for “the poor.” It was, in fact, originally an anti-poverty program. But millions of low-income people not only live poorer lives in retirement due to lower incomes from Social Security, they also have no wealth to pass on to their spouses and children when they die. That’s real inequality, mandated by government.

RELATED:

The Runaway Entitlement Train 

A First Whack At Social Security 

Is The U.S. Government Insolvent? Sorry, But Its Accountant Can’t Tell You 


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