A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk.
So I am putting money in today…they are paying out those who are retired or disabled…and I get to hope that eventually I will see returns? Let’s ignore that little argument for today, and focus on – if you could opt out of social security would you?
How Much am I putting into Social Security? What Can I expect to get Out?
Currently, FICA Taxes (Social Security Tax) tax 6.2% on the first $106,000. That $106,000 number is expected to go up, if not made unlimited. So how much I am going to put in is a really difficult number to try and predict. Will I start making my millions? will different streams of income be taxed differently in the future? But since we have to assume something in an effort to provide a calculation, I will use some excel skills combined with the SSA’s estimated Calculator.
I will assume my age, 28 and an assumption that I am making $150,000 W2 Employee (I am not making this amount, but I want it above the max rate for purposes of this example). Why W2? Because I don’t want to get involved in Self Employment FICA Taxes.
- Using the above variables I am expected to receive $2,556/month starting at age 67 in 2048(in today’s dollars).
If that is the case how much will I have put in from now until 67? Even if we were to ignore a rise in FICA tax rates, and the increasing the cap I will have put in ~$259,000 (39 years * $6,572/yr). But that ignores the growth I get on my first $6,572 for the next 39 years, and the second, etc.. Adding a 5% net compounding rate this number will increase to… ~$832,000.
Using that $832,000 number if we divide that by the $2,556/month number the SSA’s calculator gave me, gives me about 335 months or nearly 28 years worth of income (this number is purposefully low since the remaining $830,000 after the first month would still be growing).
So if given the choice I would opt right out of the social security system
Some Benefits of Social Security Not Found in the Math
There are some benefits that aren’t found in my simple calculations.
- Social Security provides widow benefits
- Social Security provides disability benefits
- Social Security provides surviving children’s benefits
My 6.2% can purpose a whole hell of a lot of life insurance and some disability insurance.
What about you? Would Opt Out if given the choice?