Friday, January 28, 2011

Progressive Logic & Compound Interest

Social Security by the Numbers

There has been a lot of talk on the left and right about slashing pensions, medical benefits, and other retirement plans of folks who are already retired, or who have contributed into those plans for many, many years.
"I would like to see any Tea Party member cut their Medicare Card. Or not to cash their SS check. Or quit their government job (whether state or federal) or refuse any benefits associated with a past or present government job."

"Federal, state, and corporate pensions should be substantially reduced if not eliminated entirely."

"A quick fix to all government budgets is to stop paying pensions and benefits."

"All pension should be abolished ! ! ! ! ! ! ! Including federal government."
[sic]
You can opt out of the benefits, but not the taxes
These comments are not unique and are reflective of the problem with the progressive mindset. If you are against their programs, you ought to opt out... don't collect that social security check of which you are paying 6.2% (12.4% if you are self-employed) on the first $106,280 of income. Of course in the progressive mind, while you ought to opt out of the benefit, there is no opting out of the taxes. They seem to think that Social Security is some form of government largesse as opposed to a rather shitty return on a government mandated investment.

$252,246.35 in...
Let us perform a simple mathematical exercise on a hypothetical entrepreneur who started working at the age of 21 and who retires at age 66 on December 31,2010. This person, born in 1945 started working in 1966 and earned the maximum FICA taxable income through this period. This person, over his 45 year work history, would have paid $252,246.35 in Old Age Survivors Disability Insurance (OASDI) on his income.

The total is based on social security tables and breaks down all the payments, year by year. OASDI subtotal column used, because since 1994 there is no upper limit on what you are taxable on for Hospital Insurance (HI). In 1993, where the OASDI figure is $7142.40, our subject would have paid the maximum $3915 in HI, in 1994 there would be no maximum and our subject would have paid an HI amount based upon his total income. http://www.ssa.gov/history/pdf/t2a4.pdf

$269,724 out!
Now, this person who is 66 years old, if a white male, can expect to live to 75.6 years of age, that's another 114 months. The maximum benefit payout is $2366 a month for a total annual income of $28392, so in the remainder of his life (ignoring cost of living increases) the social security payout will be $269,724 presuming he gets the full amount without any income offsets. AH HA you progressives exclaim... evil white conservative guy is stealing $17,478.


What if you put the money in a bank account instead?
But compound interest makes it a more interesting story. If our subject wasn't very investment savvy and had simply stuck all that FICA money in a savings account at 1% interest, he would have ended up with $285,833.49, more than enough to cover his predicted withdrawals of $2366/mo and his heirs would have received $30,062 (remember, the principal keeps earning interest). Had he invested conservatively and received an average return of 4% when he retired his portfolio would have been worth $440,270 and his heirs would have received $299,960.34... as it stands now, the SSA pockets all that money (or they would if the government didn't play funny money games).

What if you invest it?
Suppose instead that our subject had invested all that money in stocks, from 1966 until the day he retired. The Standard & Poor's annual average rate of return from 1966-2010 was 10.95%, had our subject invested wisely his portfolio upon his retirement would have been worth $1,621,653.73 and if he continued to earn 10.95% interest and withdrew only the maximum allowable under social security ($2366), when he died the portfolio would have been worth $4,074,116.83. So you can see, your government largesse has screwed our poor fellow and his heirs out of $3,804,392.83

So instead of not cashing my social security check, how 'bout I fold it into sharp corners and shove it up your...

That's the problem with progressives, they take your money and expect you to be obsequiously grateful as they dole out the pittance they think you deserve.

Compound Interest calculated using:
http://www.moneychimp.com/calculator/compound_interest_calculator.htm

11 comments:

Bastiatarian said...

>12.4% if you are self-employed

Just one correction. The 2010 rate is 15.3% for the self-employed.

A significant portion of my income, which is by no means large (especially considering my houseful of kids), comes from freelance translation work. Because of the Socialist Security tax, over 15% of that income is confiscated from my right off the top. That's money that I need right now. I don't need the state or federal government sending me information about more collectivist programs that my family qualifies for. I need to keep the fruits of MY OWN labors--MY OWN money--so that I support MY OWN family. I don't need some self-aggrandizing thug in a fancy hat making it impossible for me to live then offering to make me dependent on him for my life.

Bastiatarian said...

Actually, I need to make another correction. You're right that the Socialist Security rate is 12.4%. I was including the Medicare tax, which make the entire PENALTY for being self-employed come to 15.3% of my income. At any percentage, it's nothing more nor less than legal plunder.

Lisa said...

An aha moment. Thanks for the edu SF and for bringing up more progressive hypocrisy and double speak.

Ummm Jersey?

Mustang said...

I’m still laughing about “progressive logic.” It is an oxymoron. I think, however, we should evaluate the cause of social security. It is because the American people have never been “savers.” This may not make Americans unique, given their European origins, but I also think our government discourages savings and investments; I’ve never quite understood why.

The Japanese save 25% of their annual disposable income, which over a lifetime could be a significant amount of money that becomes part of Japan’s double-decker pension system. Retired employees of large corporations and public sector receive occupational pensions on top of a lump-sum social security payment. Here is a summary of Japan’s social insurance system.

Speaking of civility, I hear a lot of complaints among the leftist young about social security and Medicare benefits. I’m scratching my head. On the one hand, leftists want to outlaw everything “harmful” to humans (smoking, drinking, heterosexual intimacy), but then complain about the fact that people are living longer. They even propose the notion that government should withhold Medicare coverage when the patient is terminal …they just wish old people would die. What is next, then —a real life Logan’s run?

Silverfiddle said...

Actually, this is Finntann's handiwork. I'm not smart enough or diligent enought to put something like this together...

Lisa said...

sorry Finntann "Thank you" then.

You are very good at gathering logic.

Thank you SF for your hospitality. How's that?

Finntann said...

SF...you are too humble. And it has nothing to do with being smart or diligent enough. You simply have to be annoyed enough! lol

Bastiatarian, not only is it your labor, your money, and ultimately your responsibility... you could undoubtedly do much better with it than the Bureaucracy

MK said...

A lot of people do opt out of the socialists schemes. Take healthcare for example, we in Australia are forced to fund the state health, but unless you find the right hospital at the right time and all the planets are aligned, you can have a pretty shitty experience or worse, they'll kill you by accident.

Because we all know this, some of us take private health insurance and stay as far away from public health as we can, so effectively we opted out but like you say can't opt out of the glorious free public health system. I try not to think about it too much, just tends to piss me off.

So you put $252,246.35 in... to be frank, i'd consider you lucky if you get half of that back.

"...they take your money and expect you to be obsequiously grateful as they dole out the pittance they think you deserve."

If someone off the street walked into your home and did just that, you'd rightly shove their head into a wall.

Finntann said...

Actually MK here in the states you are unlikely to get as much of it back as you put in. Up until age 66 the government offsets any social security payment based on income. For example if you retire at 62, the government deducts $1 for every $2 earned over $14160.

The Javelina Bomb said...

Your last line is the most annoying part of liberal logic; their brains are so undeveloped that they can't understand why people get upset when they're getting a raw deal.

James said...

You raise an important point. Just because I object to being forced to participate in big government programs doesn't mean that I have to forfeit any benefit associated with those programs. It's as though I were forced at gunpoint to buy a pizza for more than I thought it was worth and then someone thinks there is a problem if I eat the pizza.

I'm sure that the person who made that remark about tea partiers not cashing their SS checks would never display the same confusion if tea partiers were protesting private extortion.