I decided to crunch some numbers for various types of retirement programs. For Social Security I am not using the returns promised by politicians, but instead the actual return on investment.
Since 1989 (average annualized returns):
- Social Security (G Fund): 4.76%
- F Fund: 6.38%
- C Fund: 12.46%
- Inflation: 3.54%
- Investing 12.5% of gross salary/year. Thus, initially $3,000 and increasing by inflation/year
- Retirement Age: 65
- Croaked at: 85
Using a simple, inflation adjusted (3.54%/year) initial salary of $24,000/year starting in 1989 at an age of 24. Your retirement package would likely be higher because of promotions and non-COLA pay raised, but this keeps it apples to apples. The 'G Fund' IS invested in Social Security bonds - thus it is a very good proxy of the actual value of those retirement holdings.
Gross Income/Holdings in today's dollars, at age 65
Social Security:
- Balance: $631,163
- Annual Income: $8,453
- Monthly Income: $704
- 2-Week Income: $325
F Fund:
- Balance: $893,930
- Annual Income: $13,715
- Monthly Income: $1,142
- 2-Week Income: $527
C Fund:
- Balance: $4,006,441
- Annual Income: $94,410
- Monthly Income: $7,867
- 2-Week Income: $3,631
A few things become clear.
- It's too bad we could not invest that 12.5% of gross income reasonably. Just camping it in C would have given you a very nice retirement. It would be less what is posted because you would move to more stable investments late in life, but...
- It appears that the politicians are promising F Fund returns while investing is such a way as to get G Fund returns.
- And, if the account has a G Fund balance than anything over that is a promise.
If I were someone counting on Social Security than I would be on the lookout for someone asking for 'shared sacrifice'.
That means that those future politicians think they get more votes by sacrificing you to buy more votes from others.
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