Discussion

The email asserts that any claim that Social Security pays retired people who worked all their adult lives more than their contributions to the system actually merit, is bogus. Their mathematical argument in support of this assertion is as follows:

1) The combined contribution to Social Security by workers and their employers is about 15% of before tax income.

2) If a worker averaged as little as $30K per year in his working life, the combined contribution to the Social Security system on his behalf would be about $4,500 per year (i.e. 3,000*.15) and $220,500 after 49 years of work.

3) The future value of $4,500 per year after 49 years at an interest rate of 5% per year (less than what the govt. pays on the money that it borrows) is $892,919.98.

4) $892,919.98 distributed at the rate of 3% per year, $26,787.60 (i.e. 892,919.98*.03) would last more than 30 years (until 95 if you retire at age 65) without interest paid on the on the final amount on deposit!

4) Based on all of the above, what is your conclusion as to the merits of calling Social Security and entitlement.

5) The above email claims a 15% combined contribution to Social Security by both employee and employer and 5% yearly interest rate on money in the fund.. Check to see whether these numbers are historically correct. If not, using the correct values recalculate the numbers for the AARP member in Table 1.

6) Based on current interest rates, is an assumption of 5% on Social Security funds realistic? If not, recalculate using what you consider to be a realistic interest rate.

Please answer the questions in bold.