Psst. Come over here. Do I have a plan for you!
How about you give me $7,800 per year, adjusted for inflation each year, for all of the years that you are working between now and age 70. In exchange, I’ll pay you $1800 per month (in 2015 dollars), or $21,600 per year, from age 70 until you die. If you live to age 70 and 1 month, you’ll get $1800. If you die before you’re 70, I’ll keep all of your money. But if you live to age 110, I’ll pay you for all of those months.
Not interested? I’ll sweeten it a little bit. I’ll throw in $500 in death benefits when you die. I’ll also pay you $1000 per month until retirement age if you become disabled. So what do you think? Can I sign you up?
I’ll bet you’re mentally doing a break-even calculation, so let me help you. If you start paying at age 20 and pay into my plan for 50 years, you’ll pay $390,000. If you live to age 88 and a few months, I’ll have paid you all of your money back that you paid me. Of course I will have gotten an interest free loan from you for all of those years, but this is risk free. What more could you want?
If this sounds like a bad deal, that’s because it is. But this is exactly the deal you sign up for with Social Security. If you have a $60,000 per year income, you’ll be paying in $7,800 per year. When you retire, with the full retirement age at 70 years old by the time today’s college grads collect, assuming (with a big assumption) that the system will be there at all by then, you’ll collect about $1800 per month in today’s dollars. If you die early, they keep the money.
So, would you sign up for it? Well, if you do nothing, just start your job, and sit by quietly as FICO deductions are taken biweekly from your paycheck, you’ve signed up for it.
Don’t want to send 13% of your paycheck (or even more if they raise the contribution rates again)? Speak up. Email your senator. Write a letter to the paper. Tell your friends what sort of deal they’re getting. Don’t just sit by. You don’t need to take this deal.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.