Social Security delivers good dependable returns

New data out of the Economic Policy Institute (EPI) confirms that Social Security delivers good dependable returns. Indeed, as much as Republicans would like to privatize Social Security, the current government-administered Social Security program is a smarter and far less risky investment than a privatized Social Security system.

Monique Morrissey of EPI compares Social Security returns to returns people might get from 401(k) and IRA investments. She finds that Social Security yields a 5.7 percent annual rate of return for a young worker today with average earnings over her working life. In contrast, 401(k) and IRA plans have returns of 3.1 percent and 2.2 percent in the 12 years between 2000 and 2012.

Morrissey notes that raising the Social Security contribution by 2.6 percent to close its projected shortfall would still deliver a significantly greater return than 401(k) and IRA plans between 2000 and 2012. The return would be 5.0 as compared to 3.1 percent and 2.2 percent.

Social Security’s internal rate of return is higher than Treasury bonds because they are based on projections about the economy. In addition, its pay-as-you-go system relies on younger generations to pay for older generations. It has a return on contributions based not on financial markets but economic growth.

Morrissey observes that Social Security’s internal rate of return should be equal to or better than investment returns over the long run. Moreover, they are less volatile. If you are unlucky enough to retire and depend on IRAs or 401(k)s in a bear market, you could be in trouble. Furthermore, unlike with Social Security, if you end up choosing a poor-performing investment in the private marketplace, a la Bernie Madoff, you are sunk.

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Comments

One response to “Social Security delivers good dependable returns”

  1. BC Shelby Avatar
    BC Shelby

    …the current administration and conservatives in Congress don’t like Social Security the way it is because their donors in the financial sector can’t make a profit from it. This was part of the New Deal in the 1940s something they have been working hard to undermine instead of working for the interests of this nation’s citizens like they are supposed to. Their ideal is making benefits and services many count on, particularly the poor (who cannot afford to save for retirement) and vulnerable (such as those who are disabled or elderly) based on the ability to pay. If you cannot pay, well, “tough luck” welcome to the capitalistic oligarchy of ‘Murica.

    What they neglect to consider is we already have paid into SS and Medicare, all our working lives. We also pay taxes which pay for their salaries, their benefits, their healthcare their retirement, the first class air tickets , the private jet charters, the expensive condos, the golf trips, and the new office furniture. If anyone acts “entitled” it is those in Congress and the Administration (all the way to the White House) who look to effectively take our Social Security and Medicare away thorough privatisation and outright gutting.

    In spite of their claims. Social Security is very solvent, and would be even more so if the trillions “diverted” for other purposes were returned to the fund and it was made a true protected trust. For two years there has not been a living cost increase and when one is finally given it is so small it doesn’t keep up with inflation (particularly housing and healthcare) and for many wiped out by increases in Medicare premiums (while the programme is forced to deal with rising medication and treatment costs from Big Pharma).

    The others who act entitled are the wealthy and corporations the latter which also have loopholes where they not only don’t pay taxes but in some cases, even receive rebates from the government. (essentially a “tax return”). Meanwhile they hoard trillions in profits in offshore havens, continue to send good paying jobs to other nations, and oppose raising wages here at home which would allow workers to actually cover their and their families’ basic living expenses without working 50 – 60 hours a week in multiple jobs and living paycheque to paycheque. For those people in low income occupations (such as I was), Social Security is the only retirement plan and Medicare the only healthcare plan they have to look forward to. Deny people these basic lifelines, and today’s homeless issue will look like nothing compared to what will happen.

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