Thursday, June 26, 2008

If Social Security was Privatized

In 2007, I paid a total of about $2,500 in Social Security taxes. That equates to $208.33 per month.

If I were able to invest this money alone in the stock market for 41 one years (which would make me 65 years old) and earn a conservative average return of 9%, I would have $1.1 million at retirement. (This is an average growth of 9% over 41 years and not necessarily 9% per year. There is a difference). This total includes the expense ratio of 0.22% that I am currently paying on the Vanguard mutual funds in which I am currently invested. (In simple terms, a mutual fund is essentially a stock portfolio). If I lived on just 8% of this per year, that would equate to an $88,000 salary at retirement. If the investments averaged a liberal 12% return, I'd retire with $2.5 million. When I die, whether or not it is during retirement, I can give the money I've invested away as an inheritance. 

If I were drawing money from Social Security today, I would receive a maximum of $7,651.53 as a single person or $11,476.00 as a couple if I were married in 2008. Even if these Social Security payouts were increased to account for the automatic cost of living increases for the next 41 years, it still wouldn't match the potential earnings that personally investing that money would create. When I die, whether it is before or during retirement, the money I've put into the system is gone. Shoot, Social Security probably won't be here in 15 years, let alone 41....

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