Social Security or Private Retirement?

Social Security or Private Retirement?
By Rick Kelo


So which produces better outcomes between the two?  As Social Security turns 80 years old have you ever stopped to wonder whether you are better or worse off for having government confiscate 12.4% of your wages?

A couple economists at the Federal Reserve asked themselves that question, and found that only four-one-hundredths of one percent (0.04%) of Americans would be better off under Social Security than funding their own private retirement.  99.96% were made worse off.

A few excerpts:

Roughly 0.04 percent (4 of every 10,000) of the current total U.S. population would benefit more from Social Security than from a retirement investment in the S&P 500.

Our evidence suggests that a great majority of current retirees would have had a higher retirement income under private accounts than they do now with the current Social Security system.

A person retiring at age 65 will only benefit more from Social Security relative to a private investment in the S&P 500 if he is a low earner and lives to be at least 96 years old.  Finally, for those retiring at age 70, the only individuals that benefit more from Social Security are low earners who live to be at least 94 years old and average earners who live to be at least 108 years old. 

Of course that 0.04% who would benefit more from Social Security still bears a considerable risk mentioned, but not quantitatively compensated for, in the study.  Bearing that risk in mind we would conclude that fewer than 0.04% (and possibly no one) benefits more from Social Security.  That risk is mentioned in the study so I’ll allow the author’s words to speak for themselves:

There is overwhelming evidence that the current Social Security system will become insolvent within the next several decades.

(Originally published on the Ceteris Paribus blog: http://rickkelo.liberty.me/)