Social Security and me
Jay Bryant
February 11, 2005
townhall.com
Well, it's February 2005, which means it's my month to turn 62. Which means I could, if I wished, retire and start collecting my Social Security. Not that I intend to do so, mind you, but I could.
In fact, I have received a document from the Social Security Administration which estimates that if I were to start "receiving benefits" this year, my "payment would be about…….$1,327 a month." The same document shows my "taxed social security earnings" for each year starting way back in 1960, when I spent the summer jerking sodas at Hoffert's Drug Store in Simsbury, Connecticut.
My earnings that year were $93, and I was worth every penny of it. The next summer, I worked as a short order cook at a snack shop on the beach at Lake Wassokeag in Dexter, Maine and earned $264. Unlike later years, when my income exceeded the cutoff for "taxed social security earnings," every penny of my poor $264 was taxed, because social security is a regressive tax that hits low-income workers, like soda jerks and short order cooks, much harder than higher income folks, like political consultants and columnists.
Now, as you probably know, President Bush has proposed to let younger workers start putting a small part of the money they pay on their taxed social security earnings into a private account, and invest that account in securities such as stocks and bonds.
Folks my age never had that opportunity, and never will, but I got to wondering what would have happened if I had.
So, with the data from the Social Security Administration, a self-generated Excel spreadsheet and some help from my brother and my brother-in-law, who understand these things, I made a few calculations.
What would have happened, I thought, if I'd invested my social security taxes in the average blue chip Dow Industrial stock all these years, instead of sending them to the government?
That's a knowable figure, because all you have to do is find what the Dow was in a given year, plug in how much tax you paid and increase that amount by the percentage increase in the Dow from then until now. This is the part my brother-in-law helped me with. We used both the individual and employer paid amounts on the theory that if my employer hadn't had to pay that money to the government, he could have paid it to me. Mr. Hoffert might not have done so, of course, but then again being freed up from all that bookkeeping, he might have paid me even more.
Anyway, Hoffert and I paid a total of 6% on my $93, which equals $5.58. Since 1960, the Dow has increased by a factor of 1650.80%, meaning that if I had taken the $5.58 and bought the average Dow stock, the investment would today be worth $97.69, and the $15.84 I paid the next year on my $264 burger-flipping wages would be worth 217.77, the Dow being up 1374.82% since 1961.
But wait a minute! Stocks earn dividends, too. So my brother showed me where to find the information that allowed me to do some rough calculations on what my mythical average Dow blue chipper should yield, dividend-wise. It turns out to vary over time, being really high at the end of the Carter inflation, and low during the Clinton bubble. I plugged those values into the formula, and subtracted out an allowance for broker's fees. I really tried to be super conservative in everything, not to mention starting with a conservative investment strategy to begin with. The bottom line is that my mythical Dow-Instead-Of-Social-Security portfolio would today be worth $930,651.89.
Next, I went to Google and typed in "annuity calculator," which search resulted in "about 340,000" results and took 0.13 seconds. I selected the one at www.immediateannuities.com, because it said it was free and instant. It was free, although not quite instant, taking at least 0.13 seconds, perhaps a bit more. Anyway, for a 62-year-old male in Maryland, a $930,651.89 single life annuity will return an "estimated" $5,748 per month, assuming the deal ends the day I die. That's $68,976 a year, tax-free. If I'm willing to let Mrs. Bryant collect payments after my demise, the monthly payments go down a bit (but not much), depending on how long she gets to collect.
Of course, it's all academic, since I wasn't allowed to invest any, let alone all, of my social security taxes. So I'm stuck with my lousy $1,327 a month ($15,924 a year), less than a fourth of what I could have had. And, of course, there would have been lots of ways to make a lot more than my modest hypothetical "average Dow" plan.
I support the idea of a forced savings program. I do not believe I am now, nor have ever been, responsible and disciplined enough to have saved all that money, left to my own devices, and neither would a lot of other people, I'm guessing, which means the taxpayers would have to find a way to take care of them, not having the stomach to watch them starve. To avoid that outcome, I'm willing to give up my freedom not to save.
But I can think of no reason why individuals should not be allowed to invest their forced savings in the economic growth of the nation. Don't talk to me about risk. The risk today is that Social Security will go bankrupt before my kids get their share, and the program has already been cheapened from what it once was. Maybe later generations won't do as well as I would have done, but the return on the Dow could drop to twenty- five percent of what it was for me and they'd still be no worse off than I am, or they would likely be without private accounts. In fact, such a poor long-term economy would destroy the government program just as surely as it destroyed the private accounts.
So, Congress, dear Congress, get off your duffs and pass the President's reform idea, figure out the best way to finance the transition and get the better plan started. I'm living proof it would work, and so are all of you.
Veteran GOP media consultant Jay Bryant's regular columns are available at www.theoptimate.com, and his commentaries may be heard on NPR's 'All Things Considered.'
©2005 Jay Bryant
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