Social Security - What Happened? Part 2

This post is a follow up to my friend Orrin Woodward's September 29th blog post entitled, "Social Security - What Happened?" As someone that is 30 years of age I received my social security statement this past year and my retirement is at a whopping $400 per month when I hit the government issued retirement age. Good thing I am not counting on that:). If this program is not a pyramid scheme then I do not know what is. Allow me to explain a bit further at the risk of sounding too fanatical. As Chris Brady says, “There is no negative or positive truth – there is only truth.” In the spirit of that quote I would like to help add some clarification to some of the issues going on right before our eyes.

For the past 5 years I have been required to "contribute" the maximum amount of tax into the social security fund. According to the government the maximum for a W2 employee is just over $6,600 per year ($13,243 for business owners) and to receive $400 per month after contributing $297,000 over an average lifetime career of 45 years is absolute highway robbery! Not only that, but I don't even get access any of the principal of that money.

Ronald Reagan said, "Facts are pesky things." Allow me to give you a few facts on the numbers I just shared:

Fact #1 - Receiving $400 per month on a $297,000 investment yields a .016% return.

Fact #2 - If you take $400 and divide it $297,000 you will see how I got that number. One side note.....right now Bank of America states that a savings account with them yields .05% interest rate. 3.4% times the amount!

Fact #3 - Just so I don't inflate the numbers I will not include the power of compounding interest over 45 years that would occur by keeping your money in a savings account. The difference between .05% and .016% is .034%. So if you took .034% and multiplied it out by the $297,000 you will see it translates into $841. Not only is that 3.4 times higher than the social security benefit, which is good – but we would still have access to the $297,000

Fact #4 – Ok I can’t help myself. Here are the real facts, including the benefit of compound interest; we would receive by being able to invest that S.S. money in a savings account. Investing 6,600 per year from the age of 25-70 at a .05% interest rate per year would equate to $1,166,023.13 dollars in the bank by the age of 70 years old. Beginning at 70 lets say you decided it was time to stop working. If you lived off the interest of the account, your annual income would be $58,301.15. That is higher than the average income in the United States! However, that is before taxes of course:) Oh yeah, I almost forgot….you still would have access to the $1,166,023 principal.

Does anyone think we need social security?! I made some pretty elementary assumptions because I didn’t even assume anyone has any other types of investments. I don’t know why it is so hard for voters to not understand this very simple concept. You say, “well Matt I don’t contribute $6,600 per year to S.S.” Then use the formulas above and I guarantee you that you will come out ahead every single time.

I just read Glenn Beck’s, Common Sense, book a couple of months ago and he had some pretty alarming statistics in the book. The book is worth it’s gold between pages 24 thru 30. Here is a snapshot of what we as Americans are faced with:

- Our interest payment to service our $11,000,000,000,000 in debt now stands at $26 Billion per month or $300 Billion per year!

- By 2019 our annual interest rate balloons to $806 Billion per year!

- How do we pay off the debt? Some people say….”tax the rich!” Lets analyze that for a minute: The total 2008 profits of Exxon Mobil ($45.2 Billion), General Electric ($17.41 Billion), Wal-Mart ($12.7 Billion), and IBM ($12.3 Billion) totaled $87.61 Billion. If we taxed those companies at 100% we wouldn’t even have 1/3 of the amount needed to pay the annual interest payment – let alone any principal!

- Our politicians have committed future generations to pay a combined $99.2 trillion just for our unfunded S.S. and Medicare obligations……notice without even considering the National Debt!!

- Each person’s share of the $99.2 trillion works out to about $330,000. A family of four will be saddled with $1.3 million (again, excluding the National Debt)……as a side note – the typical high school graduate will earn as much as $1.53 million over his/her lifetime!

Some of you might be saying, “Geeze Matt be a little more positive!” Well, I am positive – we are facing some serious issues and it is time for all of us to wake up! The statement “ignorance is bliss” is no longer accepted…Ignorance is expensive! For those of you that would like – please feel free to check all of these sources and learn them for your current situation.

I still believe in the American spirit and very thankful to live in a great country! This is a call to action for people to wake up and make this “Challenge Spike” our finest hour!

Orrin – thanks for blazing the trail buddy! Sure do appreciate your leadership and very proud to have opportunity to continually learn from you. You state, your blog is to generate thoughts, ideas, and conversation – and the messages you have been sharing with us has really made me stretch and think in ways that I am thankful for doing. Keep up the great work and look forward to seeing you soon.

God Bless, Matt