Saturday, August 02, 2008

The Social Security Lottery

McCain I hear supports raising the retirement age to extend (not save social security) the ability to pay full benefits to a select few (those born prior to a specific year). Instead of addressing the root cause behind social security’s problem, both McCain and Obama are treating a symptom. I wrote this years ago. It is just as appropriate today as it was then.

THE SOCIAL SECURITY LOTTERY

October 24, 1998

©1998 Larsen

I was appalled when I heard several senators and congressmen state privatizing Social Security would end up reducing future projected benefits by 20 to 30%. Do they not realize Social Security is already broke? Increasing the age of retirement to 70, increasing FICA taxes, and paying five more years into the broken system only kills off another 16% of the people living between 65 and 70. Even this is not enough to save the system. Social Security is a lottery! If you live long enough, you might get something.

Let's look at the Social Security Lottery. Let's make it really simple. Inflation has been eradicated and is zero until the year 2050. Based on a 2% wage growth, I will pay $303,607 into Social Security. What do I get for this bet (contribution)? I get to play the Social Security Lottery. Social Security in exchange for my $303,607 allows me to bet I will live long enough to collect a $2,419 monthly benefit for life starting at age 70!! But that's not all! I may be eligible for Medicare! Doesn't this sound exciting?

TOTAL PAID IN $303,607

BENEFIT PAID $2,419 PER MONTH

PAY BACK IN 10.5 YEARS

TREASURY INVESTED AT 5% grows to $1,109,126


Now I must warn you there is a catch to this fantastic sounding payout! You may not live long enough to collect a penny! That's right, living to age
70 is very tough for a large percentage of the population. The probability of living to age 70 is only 62%. This means 38% of us will play the game and not collect a penny, slightly better than a 50-50 chance, flip a coin. Their contributions go to the lucky winners over age 70.

Below is a chart that shows the odds in collecting my winnings. Your odds will be the same, however, your payout and contributions may differ from those listed. Do you wish to play the Social Security Lottery?

AGE

ODDS IN 10

BENEFITS PAID

I LOST THIS MUCH

I LOST THIS MUCH AT 5%

70

6

0

($303,607)

($1,109,126)

75

5

$145,152

($158,455)

($963,974)

78

4

$232,243

($71,364)

($876,883)

81

3

$319,334

$15,727

($789,792)

85

2

$435,456

$131,849

($673,670)

88

1

$522,547

$218,940

($586,579)

94

0*

$696,730

$393,123

($412,396)

* 1 in 99.72.

If you do not wish to play the Social Security Lottery, contact your Senator and Congress person immediately and express your dislike for the Social Security Lottery. Tell them to submit legislation to eliminate this type of gambling. My 10 year-old son, eight and six year-old daughters have already told me they do not wish to play

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NBC-33 Debate poll results from 2002