Social Security Calculator

Should the Social Security system be privatized?

Is the Social Security system forcing retirees into a life of poverty?

Below is a calculation showing what the median income earner would have in a private account, had they been able to invest in the broad market (S&P 500) instead of in the Social Security system. This is for a current retiree, age 67. We assume the person has been working since age 18 (1977->) and earned the median income level each year.

With a private account, the median income earner would retire at age 67 with over $4.8 million dollars in their account, even after accounting for the crash of '87, the dot-com bust, the crash of 2008, the COVID crisis, the 2022 bear market, etc. At 5% interest, the person could withdraw $20,080 per month, in interest only, for the rest of their life, and leave the entire $4.819 million to their heirs, ending the cycle of poverty. With Social Security, what will they get? The average monthly Social Security benefit for a worker who retired at 67 is just $2,163 per month. And when they die, the account is lost. A working spouse would also have an account, so a couple could retire with an annual income over $481,900 per year, far more than what they ever earned while working! Instead, Social Security is keeping the American worker in poverty at retirement.

Comparing apples-to-apples, we need to account for the fact that Social Security confiscates the person's account when they die. Their own actuaries say that a retiree reaching age 67 can expect to live about 17 more years if male and about 19 more years if female. So, they think the account needs to last about 17 years. If the retiree's private account at retirement paid 5% interest, and they drew it all out in 17 years, they would be able to take $35,116 per month ($70,232 per month for a working couple!), 16 TIMES more than Social Security. Even having taken the zero-risk approach of investing any retirement funds in 10 year US Treasury Bonds would allow the median income earner to draw out $4,055 per month, nearly double the amount that Social Security pays. For those unfortunate enough to die before retirement, the Social Security system confiscates their accounts, with meager returns passed to their survivors.

Here is another way to look at this... At 5% interest, to withdraw $2,163 per month for 17 years, a person needs $297,000 in their account. This median-income worker could have retired at that payout in 1997, at age 39! Social Security made them work for 28 more years to get the same payout.

Again, this is for the median income earner. You can enter your own income figures. Get your latest Social Security statement, plug in your own numbers, and hit the "Recalculate" button to see what your account value would be. (Social Security typically mails statements periodically, but you can view yours online at: https://secure.ssa.gov/myssa/bec-plan-prep-ui/earnings-record)

We've all heard the argument, "Yeah, but it's too risky. What if the market crashes?" Well, let's say the market does crash, and loses 50% of its value the year you want to retire. That is not likely, but could happen. Where would you be? Even in that worst case, you are still better off than you would be under Social Security. And, historically, the market has usually recaptured much of the loss in just a few years after a crash. Also, let's not forget that Social Security is the world's biggest Ponzi scheme, as contributions made today are going directly to pay benefits for today's retirees. There is no trust fund; it is a pay-as-you-go system. It is unsustainable, and future generations will pay more to get less. Social Security's own actuaries tell us that if taxes are not raised, the retirement trust fund runs dry in 2032, and benefits get cut by 22% across the board.

NOTE: Medicare contributions are shown for study, but not included in the private accounts. The private accounts are investing only the Social Security (Old Age and Disability) contributions. Every figure in the table is an actual reported value — none are estimated. Median income is from the US Census Bureau (Historical Income Tables, Table P-36, full-time year-round workers, the two sexes weight-averaged); the S&P 500 column is the total return with dividends reinvested; the bond column is the average of the twelve monthly 10-year US Treasury constant-maturity yields.

NOTE:  The Social Security Act of 1935 originally promised, "You and your employer will each pay 3 cents on each dollar you earn, up to $3,000 a year. That is the most you will ever pay". Of course, that promise was not kept. Click here to read the original Social Security I.S.C. 9 pamphlet, distributed to all workers in 1936.

Something else to ponder...  The first old-age social insurance program in the world, and the model for the US Social Security system, was put into place by German Chancellor Otto von Bismarck, who called his measures “State Socialism”.   The purpose of his program was to control the population, making them dependents of the state.  He stated:

"Whoever has a pension for his old age is far more content and far easier to handle than one who has no such prospect. Look at the difference between a private servant and a servant in the chancellery or at court; the latter will put up with much more, because he has a pension to look forward to...  I will consider it a great advantage when we have 700,000 small pensioners drawing their annuities from the state, especially if they belong to those classes who otherwise do not have so much to lose by an upheaval and erroneously believe they can actually gain much by it."

- Otto von Bismarck, original architect of old-age insurance programs