As Social Security insolvency looms over the heads and futures of the American people, a new background paper from the Heritage Foundation shows the startling lack of return that the program brings upon retirement. Currently, both low and high young wage earners stand to lose out with the present system. Virtually everyone in the workforce of all ages and genders fail to benefit, but the loss is especially evident with young workers.
To demonstrate this, the rate of return for Social Security was compared with that of a personal account that receives the same percentage of yearly income as the Social Security payroll tax. For a twenty-three year old earning around $60,000 a year, investing in an assortment of stocks and bonds could return three times more in monthly annuities than Social Security would. If that same twenty-three year old was earning a measly $19,000, she potentially would gain 40% more each month than what the present system would. The situation is worse for those with high incomes. If that same individual at twenty-three suddenly received an extraordinary pay raise totaling $128,000 a year, upon retirement she could likely expect ten thousand dollars in monthly annuities versus the $2,500 monthly payment of Social Security.
The current program doesn’t offer much for heirs of a recipient either, giving them little to nothing when the beneficiary passes away before or soon after reaching retirement age. However, a personal account allows the holder to give a sizable inheritance to designated family members or loved ones, which is more valuable for lower income families, who usually see lower life expectancies and would benefit greatly from the leg up offered by a large bequest. For example, if a young man making half the average wage uses a personal account for retirement and passes away at the average age of seventy-six, he would leave his heirs with a substantial $479,000. When the inevitable crash of Social Security reaches legislators in Washington, they must reach out and seek the help of the private sector, who will be there with the opportune solution.