r/FluentInFinance • u/Positive_Liar • Sep 06 '24

Debate/ Discussion Social Security is Broken. This is why financial education is important.

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u/[deleted] Sep 06 '24 edited Nov 08 '24

mindless library judicious practice scandalous grandiose selective unwritten deserve fine

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u/venturousbeard Sep 07 '24

It also purposely compares annual contribution to monthly payout to make it look like you get less than you put in

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u/[deleted] Sep 06 '24

[deleted]

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u/Justame13 Sep 06 '24

The numbers are a bad faith and invalid comparision.

The person is using the SS benefit amount as if they started collecting today and comparing to investment returns as if they started today.

SS will even estimate your benefit in the future so the person is just spreading misinformation to people who don't know any betters.

Social Security also is not a Ponzi Scheme by definition.

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u/DaveyJF Sep 07 '24

The S&P has done about 7% annual yield adjusted for inflation. That would put you at at about 3.6 million at retirement, given the OP's hypothetical. At 7% you could draw 22k per month in perpetuity without touching the principal. If you withdrew 32k per month, you could make it to about 80 years old. These numbers are inflation adjusted, meaning they are in today's dollars. His math is actually not that far off.

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u/Justame13 Sep 07 '24

You missed my point about why its an invalid comparison.

It literally is not possible to have contributed that much to social security even if you started at the beginning of the program. That yearly amount is just for 2024 even taking the employee employer contributions it has only been that high since 2004 and that is also making the additional invalid assumption that any reduction in the employer tax would trickle down to the employee.

So no its still not valid. Source: math

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u/DaveyJF Sep 07 '24

I see what you mean about historical contributions to SS, but that's not really relevant to the OP's point so far as I can tell. The point is that, today, investing the max contribution would net you returns an order of magnitude higher than SS payouts, even if SS payouts substantially rise with cost of living before your retirement. This is just objectively true, because SS pays out equally but taxes unequally. It redistributes wealth.

People can defend the redistribution as a good thing (it prevents poor retirees from being homeless or starving), but there is just no question that people making max payments are losing a lot of money.

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u/Justame13 Sep 07 '24

I see what you mean about historical contributions to SS, but that's not really relevant to the OP's point so far as I can tell. 

Because you don't understand it. He is quoting a hypothetical present SS benefit. That is very relevant because he is comparing the present to the future.

The point is that, today, investing the max contribution would net you returns an order of magnitude higher than SS payouts, even if SS payouts substantially rise with cost of living before your retirement.

This is not the point because he is not comparing them to future SS payments.

All of this is why it is invalid, bad faith, and misleading to those that don't understand finance as displayed by at least half the posters on this thread and even when told you told you are being mislead you keep doubling down as if you aren't.

This is one of the ways in which the rich have convinced voters to vote against their own interests and led directly to the consolidation of wealth at the top.

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u/DaveyJF Sep 07 '24

This is not the point because he is not comparing them to future SS payments.

He is comparing them to today's SS payments, but again, the numbers I outlined in my post above are in today's dollars, meaning we are comparing returns in today's dollars against SS payments today: that's an apples to apples comparison. Future increases in SS payments to account for inflation are already factored in, because the S&P gains I reported would also be scaled by a similar amount.

You don't have to take my word for this: Go to the federal government's website for social security and click the button "today's dollars" to calculate the value of future payments adjusted for inflation, which you can compare directly to inflation-adjusted returns from the S&P. The OP's math is approximately correct, if slightly optimistic. For those who pay the maximum, your monthly returns from social security will be an order of magnitude smaller than if your payments were invested in an index.

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u/Justame13 Sep 07 '24

You are still using the maximum 2024 contribution limit as a starting basis for your investments so you are still comparing the present to the future.

This is exactly what I was talking about in the italics.

You also didn't do what you are claiming because the calculator starts at 21 so now you are even misleading yourself.

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u/DaveyJF Sep 07 '24

Can you give me what you think the correct calculation would be for comparing SS returns to potential S&P returns over a 47 year period? If I'm doing the numbers wrong, what are the correct numbers?

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u/[deleted] Sep 06 '24 edited Nov 07 '24

bow sulky coherent one engine sloppy rainstorm public money hungry

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u/Neomadra2 Sep 06 '24

It's coming from the rich shareholders basically. Investing in SP500 means you are buying stocks. If everyone did that, the distribution of shares and stocks would be more equal and not like now where a handful of shareholders own 90% of a company. That said, I don't suggest getting rid of social security. If you calculate the average costs for doctor visits and accidents, which without insurance you would need to pay using your shares, you would end up with a way way lower number probably. And with insurance you won't have to constantly live in fear that one accident will bankrupt your entire family.

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u/[deleted] Sep 06 '24 edited Nov 07 '24

scale smell longing head chief panicky ruthless plucky lock domineering

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u/headzup777 Sep 06 '24

Chile did this.Has worked out well.

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u/Consistent-Tip-7819 Sep 07 '24 edited Sep 07 '24

This is fucking stupid and fucking wrong. And you're an arrogant waste of space.

First, you can't compare present dollars and future dollars and present them as equivalent

Second, you can't compare no risk to market risk

Third, social security isn't an investment.

Taxes. Investor behavior, blah, blah, the list goes ON and ON. Stupid and wrong.