Anyone Care To Guess The Average Rate Of Return On Money Paid Into Social Security?

[Patranus]

I believe social security was created because most people live hand to mouth and wind up with nothing. The minimum payment, I would think, is way way better for most folk than nothing, especially when they are too old to work.

It does gall the hell out of me, however, that I have to pay for others, who by rights of their worthless lives, should just die on the side walk, but then, I am an asshole and that's how us assholes are.

The point is that even those poor people could take the money that is taken out of their paycheck, buy a treasury bond, and get a higher rate of return.

 

[nick1985]

Oh, my!

The wittle Trolls have got their panties in a wadd.

No big surprise.

I'm fine, I just pointed out how fucking stupid I made you look.

 

[CPA]

Last I read (a few years ago) it was about 1.2%, IIRC.

 

[Acanthus]

You are kind of omitting some conditions there.

While social security is stable income, entering the stock market is volatile as hell.

What if you were supposed to retire in 2009? Your blue chips would've crash and burned by double digits across the board. Alarmingly enough those people would have no protection from poverty, which is exactly what SS is designed to protect our people too old to work from.

While the rate on returns is not fantastic, employer matching programs and the like still make it an attractive prospect for people that don't normally save. (read: over 60% of americans are paycheck to paycheck now)

 

[Acanthus]

The point is that even those poor people could take the money that is taken out of their paycheck, buy a treasury bond, and get a higher rate of return.

The average person will not do that.

 

[spidey07]

You are kind of omitting some conditions there.

While social security is stable income, entering the stock market is volatile as hell.

What if you were supposed to retire in 2009? Your blue chips would've crash and burned by double digits across the board. Alarmingly enough those people would have no protection from poverty, which is exactly what SS is designed to protect our people too old to work from.

While the rate on returns is not fantastic, employer matching programs and the like still make it an attractive prospect for people that don't normally save. (read: over 60% of americans are paycheck to paycheck now)

You would have been a complete idiot to have the majority of your holdings that much in stock that close to retirement. People seem to forget that when they shout "look! look! if you were going to retire you'd be SOL if it weren't for mommy government!"

No, I wouldn't. As you get closer to retirement you continually remove risk.

 

[nick1985]

The average person will not do that.

And whose problem is that? People need to stand on their own 2 feet and stop relying on the government as a set of training wheels.

 

[Mursilis]

You are kind of omitting some conditions there.

While social security is stable income, entering the stock market is volatile as hell.

What if you were supposed to retire in 2009? Your blue chips would've crash and burned by double digits across the board. Alarmingly enough those people would have no protection from poverty, which is exactly what SS is designed to protect our people too old to work from.

And how exactly is SS going to save future generations from poverty when the gov't is flat broke?

 

[Moonbeam]

And whose problem is that? People need to stand on their own 2 feet and stop relying on the government as a set of training wheels.

Most people are useless and have no reason to be alive. They don't have the brains to do anything worthwhile. Basically they just fuck and die. People like yourself who are lucky enough to learn things, have the training to make something out of yourself are the exception not the rule. You are morally superior, genetically superior, intellectually superior, and psychologically superior. You are a winner in a world full of worthless people who don't really even know or have the means to wipe their asses. If you really want to help us out with this mess you should go outside and start to kill them because the growing complexity of society is only making this worse. Soon maybe only 2 percent of the cream of the crop is going to be needed to keep things running. There is just so much scum that needs to be eliminated. Sadly, of course, there will come a point when you too will have to say good bye.

 

[Moonbeam]

And how exactly is SS going to save future generations from poverty when the gov't is flat broke?

My guess is that when I get real hungry I'm going to come looking for you. You might want to keep that from happening. You might find yourself dozing off while the hungry never lose their focus.

 

[ElFenix]

i'd like to see that for someone retiring on January 1, 2009 (so, not including the big gains in 2009), with the chart starting at january 1, 1974 so you get a 35 year capture (which is far more useful for retirement planning than an 11 year window you've selected.)


edit: my google-fu is strong and i've found that exact calculator, performing calc

edit2: the $1 grew to 6.26 after inflation.

edit3: i should synthesize with http://www.davemanuel.com/median-household-income.php and figure out something rather interesting

edit4: and this too http://www.ssa.gov/OACT/ProgData/taxRates.html

edit5: for example, someone at the median income in 1975 putting 4.95%x2 of their income ($1,168.20) into the stock market would now have $11,249.77, continue out for the rest of that with a retirement on dec. 31, 2008 and see what kind of annuity could be bought. next year is $9,344.00

 

[nick1985]

i'd like to see that for someone retiring on January 1, 2009 (so, not including the big gains in 2009), with the chart starting at january 1, 1974 so you get a 35 year capture (which is far more useful for retirement planning than an 11 year window you've selected.)

He has already been called on that, and he resorted to name calling and eventually backed out of the thread like a little bitch.

 

[theeedude]

We can always make it higher, but it is going to cost us more money in taxes to pay that extra interest.
Stock market returns wouldn't be as high if people were forced sellers to pay for their retirement. People would invest based on actuarial tables. Also, people who invested poorly would simply be a burden on taxpayer through supplemental security income, so you'd have people gambling their retirements with government backing.

 

[Fern]

$100,000 = 0.69%
$75,000 = 1.16%
$50,000 = 1.81%
$35,000 = 2.38%

So in all cases you would be better off buying a treasure bond or entering the stock market.

Hell, even at minimum wage you are looking at 3.65% also below a treasury bond.

I do suspect the ROI is quite low, however we really need to know how these rates have been calculated in order to trust that they are accurate.

As I've pointed out before, SS is much more than a mere retirement account.

Social Security can be broadly split into 2 sections: OASDI and Medicare.

So, to calculate the ROI you must first remove the Medicare portion. That's pretty easy to do; we know how much is apportioned to Medicare.

But the OASDI includes several types of insurance such as disability insurance and survivors insurance (income for your survivors should you die young). These payments for insurance must be seperated out to properly calculate the ROI, but IDK how they could do this. Perhaps those insurance rates are listed somewhere and it's just that I've never seen it.

Fern

 

[First]

Sure about that?
http://observationsandnotes.blogspot.com/2009/03/average-annual-stock-market-return.html

But lets try and answer the question

So I tell you that stocks don't return anywhere near 9.4% and you respond by posting a blogspot URL? rofl. Let's try our hand an actual economist, who did actual study and research: http://www.econlib.org/library/Enc/StockMarket.html

Yes, I was off by 1% on the 30 year treasury.
http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml

Oh lord. Please factor in inflation. In fact I was originally wrong about 3%, that's generous and in real terms is probably closer to 2%. I'd have to do more research on that one.

 

[Fern]

So I tell you that stocks don't return anywhere near 9.4% and you respond by posting a blogspot URL? rofl. Let's try our hand an actual economist, who did actual study and research: http://www.econlib.org/library/Enc/StockMarket.html

-snip-

There's nothing wrong with the info in his link.

Your source of info and his merely differ in the time periods examined. While heyheybooboo's cherry picked time line is absurd, those in his link are not. The fundamental difference, aside from his source offering various time periods, is that it doesn't include any pre-1900's data. Not an unreasonable exclusion by any means.

Fern

 

[Throckmorton]

Basically, this discredits social security only if you don't understand the basic nature of an average.

Like Mark Twain said, put one hand in a bucket of ice water and the other in a pot of boiling water, and on the average you're comfortable.

 

[Zebo]

You're numbers are way off, well not off but make worst case assumptions. I'll make best, work for only 10 yrs @ $22,500 last 3 years (the optimum SS matrix ....collect 80% of benefit for only 25% contribution) which is fully vested. Collect for 30. Then you'll see excellent returns 30-40%.

 

[First]

There's nothing wrong with the info in his link.

Your source of info and his merely differ in the time periods examined. While heyheybooboo's cherry picked time line is absurd, those in his link are not. The fundamental difference, aside from his source offering various time periods, is that it doesn't include any pre-1900's data. Not an unreasonable exclusion by any means.

Fern

It's entirely unreasonable since both time periods are taken into account if you've read Siegel's work; as in any 30 year period in history since 1802 has not yielded basically any higher than ~7%. 9.4%, however it was derived at that anonymous blog, was in all likelihood nominal gains and factored nothing with regards to the reality of inflation. Given the supposed sterling quantitative analysis credentials of the author of the blog it seems highly unlikely he "forgot" about inflation, but it being a blog with no identifying information or sources of any kind, well, let's just say it's suspicious at best.

 

[Pulsar]

Nevermind. It just isn't worth it.

 

[Fern]

It's entirely unreasonable since both time periods are taken into account if you've read Siegel's work; as in any 30 year period in history since 1802 has not yielded basically any higher than ~7%.

I cannot find that in the article you linked.

Given the volitile nature of the market I find it hard to belive one cannot find some 30 periods which exceed 7%. (Just as one can likely find some that are much lower).

It really shouldn't be too hard to cherry pick some periods with very good returns.

I also don't see anything unreasonable about excluding pre-1900's stock info. In fact I'd prefer including only years following the establishment of the SEC and the application of universal accounting standards etc.

9.4%, however it was derived at that anonymous blog, was in all likelihood nominal gains and factored nothing with regards to the reality of inflation. Given the supposed sterling quantitative analysis credentials of the author of the blog it seems highly unlikely he "forgot" about inflation, but it being a blog with no identifying information or sources of any kind, well, let's just say it's suspicious at best.

It's not an "annonymous" blog.

Information about the author is provided, such as:

Education:
BA, Business Administration.

University of Chicago Graduate School of Business.
MBA, Quantitative Analysis and Information Systems.

New York University Graduate School of Engineering:
PhD program (3 years, part-time) Quantitative Analysis.

Professional Experience:
Over 20 years of management experience at Fortune 50 companies, including one of the 30 companies in the Dow Jones Industrial Average (DJIA). Positions included --
Manager, Information Systems for a division, reporting directly to the chief financial officer.
Manager, Financial, Sales and Marketing Systems for the sector/group that generated approximately half of this DJIA company's business.

I'm not vouching for his accuracy etc. But it appears you may have not read all the site linked before dismissing it. The answers to your questions can be found there. He it appears he even makes his financial models available etc. I'm just not interested enough to bother, yet I still see no reason to dismiss his data out-of-hand. I noticed the 7% ROI your article cites is based on dividend reinvested in the stocks. While that's a reasonable approach it's reasonable to not do so. Small differences in the moedling will produce different results. There is no one to do it.

BTW: It's not clear, at least to me, if when he (blogger) says "the stock market" if he's referring to the DJIA. If he is referring to DJIA, then comparing your site to the other is apples to oranges. And there's nothing necessarily wrong about focusing on the DJIA to get an idea about how the market is performing; it's what everyone does.

Fern

 

[Jhhnn]

What the usual ravers like to forget is that SS isn't just a retirement account. It's also long term disability insurance and a form of life insurance in terms of survivor benefits. It'll also never run out, even if you live to be 120. Outliving one's money is the worst case scenario for seniors, obviously, but that's probably hard for guys living in their parents' basements or working at Daddy's business to appreciate.

I've never seen any of the so-called calculations as to the yield of SS vs the market take that into account. Long term disability insurance is extremely expensive, and life insurance isn't cheap, either...

I'm sure, however, that none of the usual ravers would be willing to look outside their own framing, simply because it probably wouldn't provide that self righteous sense of outrage they seem to find so delicious, so addictive...

Sometimes I imagine a conga line of Dana Carvey church ladies doing their superior dance whenever the subject of SS comes up here...

 

[Fern]

^ Somebody didn't read the whole thread b4 posting.

Fern

 

[spidey07]

The payments for LTD and LI are but a pittance of all the money. Give me all my money I put into SS and let me do what I want with it and retire 5 years earlier than I have planned.

 

[tinker2141]

My guess is that when I get real hungry I'm going to come looking for you. You might want to keep that from happening. You might find yourself dozing off while the hungry never lose their focus.

Soylent and green, my PEOPLE!