The math of Social Security does not work for anyone, especially for those who need it most. Much has been written about this “Ponzi scheme with federal backing,” and no—it does not function like a bank account. It relies on money coming in from people working now to pay for beneficiaries taking money out at the same time. And, others have discussed the fact that it is in the red and how we are just “years away from an automatic 23 percent cut in Social Security payouts.”
But I want to quickly break down the pure math of Social Security to flush out how bad of a deal it really is for everyone.
Using the official Social Security website calculator, let’s use an US average annual income of $60k/year as the baseline to keep the math simple. Average income is a bit more now (around $68k), but it was only $8k in 1977, so social security is getting a boost in this scenario as this person in real life wouldnt have hit $60k/year until about 2020 (after 45 years of work).
At that $60k/year income, yearly social security taxes would be $3,720 per year.
So working from 1977 to retirement beginning of 2026 at $60k/year, your Social Security benefit would be $3,742/month at retirement.
Average age of death in the US is basically 79. So this person gets that money for 12 years. Thats a total benefit of $539k.
Now of course, some people die sooner and some people die later. And most people do not make $60k at age 18 (which I assumed in this calculation). I am being extremely generous in this estimate toward social security. In reality, this social security benefit would be MUCH less. But, giving Social Security a boost.
If that same $3,720/year was invested into an after tax Roth IRA with average rate of return, that same $60k earner would have $1.5 million at age 67. That person would simply need to put in $310 a month to make that happen, simply switching Social Security taxes paid to a Roth IRA investment.
For the average American, Social Security is a massive loss compared to what they could have, and that’s before considering the loss of money from Medicare taxes and income taxes.
The other thing to consider is that the person’s Social Security benefit doesn’t get passed on to adult children, unless they are disabled. So if both the husband and wife die in their early 70s—the adult kids get nothing. The government keeps every penny. With a private investment, any money not spent can be passed on to their family.
Social Security just doesn’t work on any level. It’s time to end it.
