Few things illustrate Democrat’s penchant for preying on people’s fears better than Social Security. Proposing changes to Social Security produces hysteria from any Democrat near a microphone. Barack Obama is no different as evidenced by his comments earlier this week.
Obama … criticized McCain for being open to letting taxpayers invest part of their Social Security payments in private investment accounts.
“Imagine if your security now was tied up with the Dow Jones,” he said, alluding to the recent slide in stock prices. “You wouldn’t feel very confident about the security of your nest egg.”
Senator Obama misses the point. It is not how well the stock market performs today as opposed to yesterday. There will always be ups and downs in the market and investing is for the long term. Social Security is the same. It is how well the Stock Market performs today as opposed to how well Social Security is performing today! The question Senator Obama should ask is, “Imagine if your security had been tied to the Dow Jones for the last 50 years? You’d be pretty excited about the security of your nest egg!”
Social Security, begun in 1935, is out of date. The financial world is vastly different today. Why then do we depend on an antique product? It’s easier to amend the Constitution than to update Social Security. You’d think modernization would be beneficial after so long. You’d be wrong.
Just one factor illustrates the problem. In 1935, the age at which one began to receive benefits was 65. This at a time when life expectancy for Americans was 62. Today the terms are the same but people live longer. No wonder the plan is going bankrupt.
In 1935, only the very wealthy owned stock in many companies at once. If a stock or a market segment went bad, the entire portfolio wasn’t at risk. Today, mutual funds make that strategy available to virtually any American. It also makes Social Security an antiquated, government run Ponzi scheme. To demonstrate the difference 75 years can make, we’ll use Social Security’s own benefits calculator and a simple financial calculator.
Meet Sam, our less than average American. Sam began working this year, at age 16, for just $7.50 an hour, $300 a week, $1,300 a month or $15,600 a year. Sam, while quite nice, is pretty much a loser. He is so unskilled he will never get a raise. He is industrious, though, and will work for 49 years, retiring at 65. This scenario gives Sam about $1,500 per year to invest for retirement based on current Social Security rates. Let’s see how he does. The actual numbers generated below will, of course, be different based on a number of factors. However, they are accurate enough to make the point.
Using Social Security’s own calculator and plugging in Sam’s numbers (born 1/1/1992, $15K annually to 65), his total contribution is $73,500. At retirement, Social Security will pay Sam $703 per month. This is barely over half the income he enjoyed while working. Welcome to cat food cuisine! After working 49 years at $7.50 per hour, Sam must retire on $4.50 per hour. Once Sam dies, the benefits Mrs. Sam enjoys are drastically reduced. At Mrs. Sam’s death, the benefits die, too. 49 years – $73,500 and there’s nothing to pass on. This is what Obama, Democrats and central planning Republicans want for Sam. If that was all there was, the saying “60% of something is better than 100% of nothing!” would apply. But it’s not.
If Sam is allowed to invest his money privately the results are astounding. A simple financial calculator shows Sam’s $73,500 would grow to $1,975,000 with a 10% return, $920,000 at 8%, $446,500 at 6% and $228,500 at 4%. These sums provide monthly incomes of $16,458 at 10%, $6,133 at 8%, $2,232 at 6% and $761 at 4%. Sam could earn just 4% interest for 49 years and retire with more than Social Security provides. Check with any investment broker for the actual results over the last 25 years. The ones Barack Obama is sure would have been bad for your nest egg.
I’ve further assumed the principal is left intact so when Sam dies, Mrs. Sam’s income stays the same. When she dies, the principal passes to their two children. There’s an inheritance to leave on just $15,000 a year! If we assume Mrs. Sam is the same age and does the same thing then the numbers double. $3,950,000 at 10%, 1,840,000 at 8%, $893,000 at 6% and $457,000 at 4%. Barack Obama doesn’t think you should feel confident about that.
Privatization’s real power is seen when we get to the kids and the grandkids. If we assume the same scenario for the kids and grandkids, by the time the grandkids retire, they are multi-millionaires, even at 4%. And they did it with 3 generations of losers who never made more than $15,000 per year.
Most folks, of course, will make more than that. So much the better! Add in US economic expansion from the infusion of that sort of capital into private enterprise and imagine the earnings potential future Sams will have. With such wealth, questions about affording health insurance and what to do with Uncle Joe who would not save for himself become memories. Americans will take care of themselves and their own. The government is out of our lives on a grand scale. Increases in government revenue insure promises made to those now on Social Security are kept.
Barack Obama won’t tell you this. Why? Why don’t Democrats, and too many Republicans, want Social Security privatized? Because if you don’t need government, you don’t need them. It’s a matter of personal and political power and nothing more. Their continued insistence that Social Security can be fixed and that they are the ones to fix it is a deception. It’s an appeal to your fears stealing hundreds of thousands of dollars from you and your family. It’s time for that to stop. It’s time for someone to remind you of your dreams and tell you the truth about privatizing Social Security!