The Social Security system requires that everyone put 7.5% of his paycheck into Social security every year. This is matched by the employer. That is 15% of your income. If you average $30,000.00 a year in your working life of 50 years you will put away about $220,000. The government, importantly, puts no money in.
If you start work at age twenty, invest 4500 dollars at 5% every year, at age 70 your investment fund will be $942,065.98. If you continue to earn 5% and start to withdraw $45,000 a year, you will be able to do that forever. Forever. And none of that money will come from the younger generation; the retiree will not be burdening his children's or grand-children's generation. There will be no "entitlement." The money taken out by the retiree will be the money he put in and what it earned.
There are problems here, of course. Inflation--the decreasing value of the dollar--is not factored. The maximum amount of taxable income has changed over the years. It is now $113,000 but in 1982 was $32,000 so the savings would be erratic. Nor has any inflation of wages been considered which would increase the savings. And the earnings would also change; stock market returns are much more than 5%. Interest rates in the early 1980s were 13%. But that is not the main factor. The main factor is that the money is not there. It has been spent. It has earned nothing and is gone. Now the younger generation will have to make up the difference.
So the two major factors which undermine the system --inflation and the fact the money is spent-- are factors controlled by the government. But, hey, they taught us how to sneeze.
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