Social Security a Far Better Deal for Workers Than Modern Retirement Plans

This brief set of calculations from the Wall Street Journal’s Ellen Schultz shows simply how much of a raw deal American workers have been getting from defined-contribution retirement plans. It is impossible for them to generate the rate of return of a defined benefit plan, just completely impossible. Schultz shows this in the context of Social Security:

Despite widespread gloom over the health of the system, it will be still be able to pay at least 70% of benefits in coming decades, even if no action is taken.
That means you need to take the benefits into account when estimating your retirement income, how much you’ll need to save and how to allocate your investments to achieve your goals.
A 50-year-old man, for example, might have accrued a Social Security benefit worth $1,750 a month at full retirement age. Assuming annual cost-of-living adjustments of 2% a year and a life expectancy of 90, the present value of his Social Security benefits would be $588,551 if he starts taking them at age 62, and $802,039 if he begins at 70, says William Meyer, founder of Social Security Solutions, a Leawood, Kan., financial-planning firm.
To generate the same amount of income they would be receiving from Social Security taken at age 70, the individual would have to pay $436,517 today into an immediate annuity, says Mr. Meyer.

This says more about the futility of 401(k)-style plans than the adequacy of Social Security as a social insurance program. Social Security doesn’t provide the best benefit in the world. But the universality of the program, the lifetime of payments and the simple reality of defined benefit retirement programs make it a far better deal for workers than providing a sum of money to play with in the stock market. And this is the program you get when the payroll tax is capped at the first $110,000 or so of income; raising the tax cap and plugging that money into not only the long-term funding situation but increasing benefits would make this even more stark.

Read more: http://news.firedoglake.com/2012/10/24/social-security-a-far-better-deal-for-workers-than-modern-retirement-plans/