Friday, June 14, 2013

THE STOCK MARKET vs. SOCIAL SECURITY, PART I

Here's something to think about when it comes to your retirement ...


Have you ever wondered how much management and administrative fees eat away at your private retirement accounts? Have you ever wondered what you will actually get when you decide to retire? Well, wonder no more.

According to Money Morning's Gary Gately, if a married couple contributes enough to build a $500,000 retirement nest egg they are more than likely to end up with $350,000 after deducting administrative and management fees.

Conversely the average married couple who contributed $598,000 into social security over 40 years (and retired at 65 in 2011) can expect to collect $556,000 if the man lives to 82 and if the women lives to 85. They get more if you add in Medicare, and if the married couple lives longer (in all cases the couple will receive more from social security than if they had invested the same money in an annuity).


There's one simple reality at work here.

Social security is not a private retirement account. It's an insurance program. While administrative costs eat up about 30 percent of what you put into your private retirement account (more information on private costs herehere, here, and here) the total administrative costs of social security is less than 1 percent, or about 0.8 percent of combined expenses.

Those of you who want to talk about the "the markets" historic rate of return should consider the following. Over the past 30 years the "private" stock market has been propped up with a steady stream of favorable legislation, a protected banking industry, artificially low interest rates (the Greenspan Put), Federal Reserve money dumps in Europe, Federal Reserve market purchases designed to maintain confidence, and a continuous stream of bailouts since the early 1980s, with the Mother of All Bailouts coming after 2008.

Put another way, there is nothing magical about what's happening on Wall Street.

Indeed, since 2008 we've dumped at least $4 trillion into the bailout of Wall Street. We're on the hook for trillions more. The social security trust fund, on the other hand, is currently running about a $2.7 trillion surplus. I'll leave it to you to figure out what's been happening ...



Part II on this topic: What happens under the worst case scenarios with your money in the market and with your money in social security?

Part III: Why do Wall Street's political representatives in Washington want to privatize social security? Hint, it has everything to do with a bailout in perpetuity.

- Mark

UPDATE: Basic social security facts here.

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