What if? What if we privatized a portion of Social Security and saved it ourselves? The system is nearly BROKE already (according to the “2009 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds” report), so what are we going to do about it? We could raise taxes, but that would increase payroll costs and increase unemployment, which would reduce the amount paid into the program, etc…
Current rough estimates show someone retiring at age 67 in 2035 earning $50,000.00 in today’s dollars would receive $4,216.00 in future dollars from Social Security. Why not take 10% of what is already contributed to Social Security and privatize it? How much is that going to cost us?
Example: Assume this family has one income provider that earns $50,000 a year (after pre-tax deductions). As an employee, the worker would have $318.75 a month withheld. 10% of that amount would be $31.87 a month. If $31.87 was put into a private retirement account every month (even without a company contribution/match) and the investment averaged 12% rate-of-return then the account would have $7,331.33 in 10 years, $31,527.57 in 20 years, and $374,943.30 in 40 years.
How to live on your privatized “10% of Social Security” account ($374,943.30): If you took all the money out at one time and put it under your mattress you could spend $3,000 a month for 10 years before running out. But if you only took out 1% of the balance a month ($3,749.43) you could live on that money forever because the balance ($371,193.87) would continue to grow. PS – I would hope you would save more than $32 a month for retirement anyway!
More Math: If our example gave us $3,749 a month on 10% privatized then why would Social Security only pay us $4,216 according to their own estimates? That’s pretty crummy guys!