I thought the idea of Social Security was an insurance program to guard against you outliving your means if you live long enough, not an I-get-paid-back cash-out of your payments.

Is that a fundamental misunderstanding about what the purpose of SS is?

And not sure if you know, but the dollar figures are more like you could at most have paid about $300k into the program over your 40 year working life (if you maxed out the contribution cap, 6% tax on $167k currently), not $1m by a long shot.

> I thought the idea of Social Security was an insurance program to guard against you outliving your means if you live long enough, not an I-get-paid-back cash-out of your payments. Is that a fundamental misunderstanding about what the purpose of SS is?

Yes, this is a fundamental misunderstanding of social security. Social security isn't insurance or an investment, it's a tax that's presented as an insurance or investment in order to make it more palatable. The social security tax rates were set with the demographics and life expectancies in mind decades ago. And now that these demographics and life expectancies have changed we'll either have to drastically increase the tax workers are paying, or drastically cut the amount that people withdraw.

I don't know what you're disputing over. It is both a tax, and it is an insurance program.

I think if you call it insurance it assumes you are entitled to something, but you are not. A future government can decided to stop paying or reduce payments if they want to.

I prefer what we have here in Australia where you are required to pay money into an account that is actually yours, with a balance that you can watch grow, and that you can withdraw as you need when you retire.

Is it true that you can actually withdraw it all the day you retire to buy real estate and then the government will start giving out a pension for you? This is something I was told by some Australians.

Not exactly:

    The Age Pension is designed to support the basic living standards of older Australians. It is paid to people who meet age and residency requirements. It is targeted through the means test to those who need it most. Pension rates are indexed to ensure they keep pace with Australian price and wage increases.

https://www.dss.gov.au/seniors/benefits-payments/age-pension

If you only have the house you live in (that's more or less median) and no income (from additional rental properties | other investments) then you might qualify for a pension.

Typically people might draw on their superannuation fund to provide a weekly income for themselves although they are free to use it for their retirement plans as they see fit.

The Social Security tax rate is 12.4%, not 6%. The “employer contribution” exists solely as a mechanism to obfuscate how much tax is being taken out of people’s paychecks to pay for it.

This was increased from ~10% to 12.4% in 1983 under the Reagan Administration. The extra funds weren't paid to beneficiaries: they were intended to build up a trust fund for future generations, but they were instead borrowed by the government for general spending, and to mask the effect of Reagan's tax cuts.

Yes that is the intention of SS.

I don't know if I agree with your example figures. SS was meant to be self-funding, and lately it hasn't been. This is partially because people are living longer.

Furthermore, the decline of pensions and rise of the 401(k) has enabled Americans to blow their opportunity to save for retirement, often on things like housing and college tuition (but that's another topic).

I think that either SS needs to be THE retirement plan, or it's the 401(k). As someone who maxes out their 401(k) each year, I do not want to participate into SS. I don't want it taken out of my paycheck, because that money would otherwise go into my 401(k) (technically), which I have more control over (where it's invested), which I can draw from in case of hardship, and which I can access at 55 1/2 instead of 65.

I do think SS is a good safety net to have, and I don't necessarily want to be disqualified from it because I "opted" for a 401(k), but realistically SS payments are so low relative to the cost of living that if I found myself living on it exclusively, I'd probably be only slightly more-comfortable than if I didn't have it. It's a shitty retirement either way. You're definitely not traveling or eating out or anything like that.

Realistically that's what needs to happen. Wealth needs to be redistributed from the old rich to the old poor. Social Security is meant to be security for the old poor, not a middle class pension.

Assuming you’ve got the typical HN user’s job and career trajectory, this is exactly what’s going to happen. It’s what’s going to happen to me, too. It’s what SHOULD happen. I don’t think that many people are going to be shedding tears for your financial loss.

I'm not looking for tears, believe it or not. I would like to opt-out of SS (once I have paid in a certain amount - I realize it only works when EVERYONE pays in), and put that money in my IRA instead.

Everybody loves socialism until they get back less than they put in.

It's not a zero-sum game. You pay, you receive back all the benefits of a developed society AND the retirement. Otherwise you could keep all your money and live alone in a jungle or desert.

That seems like a false dichotomy.

Not everyone, only the selfish and short-sighted.

To assume I'm one of those types just from that tiny comment... Jeez it's math. Why do I have to pay way more into my retirement than I am going to get back? I don't mind my taxes going towards others' retirement, but why does the beating have to be so brutal and severe? Why can't I pay $200k in and then opt out of SS and start putting that SS tax into my IRA?

If you're talking about US social security, your premiums are capped and your payout is directly linked to your contribution. Not sure how you could ever put $1M in of your own money over an entire career.

Do the math but ignore inflation (because the cap and payment is indexed to inflation)

If you work 30 years at $150,000 per year, you've put in 6.2% per year ($9,300) or a total of $280,000 (your employer put in another $280,000). You can't contribute more than that, since income above ~$150,000 doesn't is exempt from the social security tax.

Assume a 3% real return, your contribution turns into $500,000 plus the employers $500,000, so $1M.

If you get the max payment (because you put in the max contribution), you'll get $3,627 per month or $43,524 per year. If you retire at 65 and die at 95, you would have drawn over $1.3M. That's more than what you put in.

I'm not sure where the "rip off" is? I guess it is if you die early, but hey, that's how pensions work.

It's directly-tied to a certain point. There is a maximum, so it's not really fair to say "hey you make more, you get more back in SS!"

You're using 95 when the average lifespan in the US is 77 ($522k given back to you in SS payments).

At least with an IRA/401(k) next of kin can get the money if I die at, say, age 66.

In order to pay $1M into social security you would need to make the maximum contribution for 45 years.

In order to pay $1M into social security and see less than $200k back you would need to die less than three years after starting to collect social security (assuming you don't retire early, which you probably didn't with a 45 year long career).

This is an extreme example.

You can't collect SS until you are 65, 65 - 45 = 20, most people are employed by 20.

There are probably more people who pay more into SS than they get back, than you think, whether they make it to age 68 or not. Many Americans don't even make it to 65 because they had a heart attack at 58... So yes I would agree that the odds of you not making it to 68 but making it to 65, are low, but even at 68 you're still way way underwater vs what you paid in over your career.