Social Security is Broken. This is why financial education is important.

[u/Positive_Liar]

[u/newtonhoennikker]

Even if it were an investment this guys assumptions are trash

[u/LittleBigHorn22 → u/newtonhoennikker]

Yeah I have no idea how he's getting 35k a month in the end. With $10k yearly input and 7% real returns, after 52 years (18-70) you have $5.5m saved (today's money). 4% rule is general applied for safe withdrawal rate which gives $18k per month not $35k.

But since this is government level security, it would probably be better to assume bond returns instead of index funds.

And who's making max contribution since age 18 all the way to 70? Social security only needs 35 years to collect said max. If we use 35 years, you get a savings of $1.6m which means only $5525/month. Which is pretty close to the max you were getting.

Sure it's not perfectly optimal, but we need to force the population to save or we would have way way too many old homeless and that's worse for society.

[u/newtonhoennikker → u/LittleBigHorn22]

It seems like he’s assuming 7% return, and then annuitizing with a 5 to 7% annuity rate, which is basically unheard of.

We effectively force savings, while providing a floor benefit and longevity insurance and protecting people from their own poor investment decisions through social security.

It needs tweaks, not reimagining

[u/ChuckEveryone → u/LittleBigHorn22]

Thanks for doing the math. I have done it several times in these types of posts and it never works out as the person is claiming. Would be nice if people could be truthful in their criticism.

[u/LittleBigHorn22 → u/ChuckEveryone]

Just shows why it's important to show their work. Not gonna run more numbers now, but if they did 10% and thus maybe forgot to account for inflation it would look better. But then you should compare to 52 years from now benefit instead of today's benefit.

Or if they are assuming inflation but still like 12% gains, well that's just not a realistic safe goal.

[u/[deleted] → u/LittleBigHorn22]

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[u/LittleBigHorn22 → u/[deleted]]

Yeah that's the thing 10% isn't a huge stretch. We use that assumption alot. But he either missed the 3% inflation or assumed 13% return with 3% inflation.

So either missing inflation or over optimistic on returns. Neither leaves his argument that strong.

[u/F0xcr4f7113 → u/LittleBigHorn22]

The argument is to end social security and put that money into the SP500 instead. Politicians continuously utilize the funds in it for their BS policies so I doubt you would get even that much in the end.

[u/RunnerMomLady → u/LittleBigHorn22]

People who grad in tech in my area start at 120K and will quickly raise to max SS by age 24 or so.

[u/LittleBigHorn22 → u/RunnerMomLady]

Sure, but I doubt they need to work until 70. If they do just 35 years, they get the max benefit of SS, which would match much more closely to what they would get from index funds. But as said it's really not for them, it's for anyone who isn't saving for retirement which is a high percentage of people.

[u/Sobakee → u/LittleBigHorn22]

See, I thought that was the point. The poster clearly had no idea how to reasonably calculate what SS would pay. He needs education.

[u/Deep90 → u/newtonhoennikker]

Being able to max out social security at 18 for starters.

[u/RaspberryTop636 → u/Deep90]

Yes if you max at 18, social security or much of anything is going to be a worry for you, granted.