- When Social Security was founded, 42 workers were paying into the system for every retiree receiving Social Security benefits.
- Today, only 3.4 workers pay in for each retiree who is collecting benefits.
- The Congressional Budget Office says that Social Security will run out of funds in 2029.
A recent study by The Heritage Foundation found that if Americans kept the money they contribute to Social Security and invested it in the market, they would have more money for retirement than the Social Security system will provide them.
When Social Security was founded, there were 42 workers paying into the system for every retiree who was receiving benefits. Today, just 3.4 workers pay in for each retiree who is collecting. The Congressional Budget Office says that the program will run out of funds in 2029; the Social Security Trustees say funds will last until 2035.
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Between worker and employer payments, 12.4 percent of every worker’s wages go to Social Security. The average male worker born in 1995 will pay $404,377 into Social Security. If he lives to be 80 years old, he will collect $227,513, less than what he paid into the system. If he invested that money in a private account, with 50 percent in large-cap stocks and 50 percent in U.S. Treasury bonds, he would likely have a nest egg of $1,241,153 — more than three times what he invested.
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Why Private Retirement Savings Provide More Income Than Social Security Benefits
Private savings will produce more income for retirees than Social Security for several reasons:
- Higher returns: Over time, the private market has produced two to three times the return of U.S. Treasuries, which is what Social Security surpluses are invested in.
- Growth after retirement: Once you start taking Social Security payments, you are locked into a monthly amount, which is adjusted for inflation. With a private investment, you continue to enjoy market returns until you spend that last dollar.
- Inherited assets: When a worker collecting Social Security dies, they cannot pass on uncollected benefits to their heirs. Note that a spouse might be able to collect a higher benefit after they are widowed. When a worker leaves an IRA account behind, their beneficiaries will get the money that remains in it.
There are also benefits to the greater economy, like larger paychecks and increased productivity by companies. Clearly, the Social Security system needs reform if it is to continue to fulfill its promises to future generations. The Heritage Foundation study indicates that turning to private investment might be the most favorable way to do that.
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