Social Security system is inefficient
Below is a MRR and PLR article in category Society -> subcategory Politics.
The Inefficiency of the Social Security System
Overview
Discover how the government may cost the average American nearly $2 million compared to the S&P 500's average return. Understand why the current system is considered unfair, as it mandates investment through government bureaucracy.
Keywords: Libertarian, Free Market, Capitalism
The Analysis
Social Security claims to secure your future by taking 12.4% of your income each year. Let's break down how it compares to other investment options.
Social Security Returns
Designed to help Americans save for retirement, Social Security's average annual yield is 5.3%, backed by the U.S. Treasury. While this seems respectable compared to the national savings account average of 0.54%, many competitive money market accounts offer over 5.4% without restricting access to your funds until retirement. Withdrawing your money from a bank is usually straightforward, but that's not the case with Social Security.
Stock Market Versus Social Security
A safer alternative has historically been the S&P 500 Index, representing 500 top U.S. companies. The S&P 500 averages an annual return of about 10.4% over 78 years, significantly outperforming Social Security in the long run. Here’s a hypothetical scenario:
Scenario
- Start Working: Age 25
- Annual Income: $40,000
- Social Security Contribution: 12.4% of income
- Retirement Age: 65
Final Payouts:
- Social Security: $696,699.17
- S&P 500: $2,702,720.36
The above calculation assumes today’s Social Security yield, which is higher than the long-term average.
Understanding the 12.4% Contribution
Social Security’s 12.4% is split between employer and employee, each paying 6.2%. However, employees effectively bear the full cost because their salaries are often adjusted downwards to cover the employer's share. For example, if an employer budgets $100 for an employee, they might reduce the actual salary to accommodate Social Security costs.
Is Social Security Justified?
While Social Security aims to support retirees, it imposes restrictions on personal financial freedom. The system should be voluntary, allowing individuals to invest as they see fit. The government isn’t necessarily better at managing your finances than you are, and you should have the liberty to choose.
Alternatives and Global Examples
The S&P 500 is not without risk, but its historical performance makes a compelling case for choice. Countries like Chile, Mexico, Britain, and Australia have transitioned to systems that favor individual retirement accounts over government mandates.
For more on Libertarian views and free market principles, visit [The Libertarian Forum](http://www.TheLibertarianForum.com).
Explore why a smaller government and increased personal financial control can work better for you.
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