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quade

Research question I can't find a good answer to

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So, I'm turning to the collective genius of the interwebs.

The question has to do with the break even point of Social Security.

Let's assume an average person; not the top 1%, not the bottom 1% . . . but right down the middle of the bell curve.

Over his lifetime of work he will have contributed X amount of dollars into Social Security. Let's further assume he doesn't take the early options, but goes full term and takes it at 67.

The average life expectancy in the US is currently 78.3.

Is that the break even point or can a person ever reach the break even point?

I'm looking for math here, not simply neolithic opinions about "government bad." Where is the break even point?
quade -
The World's Most Boring Skydiver

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Is that the break even point or can a person ever reach the break even point?



This part is easier to answer than your primary question. The recent (6 weeks ago?) report on return made it clear that on average the lower quadrant easily gets past break even, the highest is a bit under, and I believe the middle was over. This is the average expected return, so the answer is yes, a person can reach it.

The report distorted things a bit with MC - everyone currently projects to come out well ahead here (though how that will actually occur is glossed over), so even the rich get more than they put in when it is added to SS.

But determining a break even point - may be too many variables here to give a precise number. Every year the COLA is redetermined, and what do you mean by break even? inflation adjusted? Adjusted for a given rate of return on alternative investments?

BTW, while the overall life expectancy may be 78.3, I believe this greatly understates it for a someone that has already lived to 67.

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BTW, while the overall life expectancy may be 78.3, I believe this greatly understates it for a someone that has already lived to 67.


Perhaps, but even if it's 85 that doesn't answer the question.

What's the break even number? On what day, in theory, does the average person finally get back the amount they've put in?
quade -
The World's Most Boring Skydiver

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BTW, while the overall life expectancy may be 78.3, I believe this greatly understates it for a someone that has already lived to 67.


Perhaps, but even if it's 85 that doesn't answer the question.

What's the break even number? On what day, in theory, does the average person finally get back the amount they've put in?



as I said, you need to define that question a bit better. Then go over to the Social Security site. It should have answers.

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Then go over to the Social Security site. It should have answers.



Oh, if ONLY it were that simple. Trust me, I've looked. There is a chart on a Charles Schwab web site for people that have contributed the maximum. That's "sort of" helpful but not exactly what I'm looking for.

http://www.schwab.com/public/schwab/research_strategies/market_insight/retirement_strategies/planning/when_should_you_take_social_security.html

I could plug in my own numbers on the SS web site, but I don't think I'm anywhere near what "average" is.

I think I'd need to chart up the average wage of every year for a fictional person over the course of 35 years, but their web site tool doesn't allow for that. It only allows a person to do their own individual calculations for their specific SS#.
quade -
The World's Most Boring Skydiver

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Then go over to the Social Security site. It should have answers.



Oh, if ONLY it were that simple. Trust me, I've looked. There is a chart on a Charles Schwab web site for people that have contributed the maximum. That's "sort of" helpful but not exactly what I'm looking for.

http://www.schwab.com/public/schwab/research_strategies/market_insight/retirement_strategies/planning/when_should_you_take_social_security.html



"Break even" also assumes

1) A zero percent inflation adjusted rate of return (it's actually worse than that since the cost-of-living adjustments lag true inflation). Comparison against TIPS (Treasury Inflation-Protected Securities, which are as safe as anything backed by the US government) yields would be more interesting.

2) That the benefits aren't taxed; although with Social Security replacing just 1/3 of a single or widowed high-earner's salary maintaining your standard of living requires drawing from other retirement savings which often count as income.

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Hate to confuse the issue further but you need to consider the correlation between income and life expectancy. Everything I've read suggests it is positive. I doubt it is linear.



Are you suggesting that people always, or even generally, make more in subsequent earning years?
quade -
The World's Most Boring Skydiver

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No, I am suggesting that higher earning people tend to live longer than lower earning people. Whether the mean earners are also close to the mean in terms of longevity I do not know.



Ah. This actually is something I hadn't considered, but potentially works for my story. Thanks for that concept.
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I think you have to also factor in that you are covered from the beginning for disability and or death benefits for your children.

A third of SS is paid out to people well before their retirement.



Except my story wouldn't be concerned with that.

What I'm concerned about is John Q. Everyman doing the calculus of his death. Whether or not it's actually worth it to continue and what would happen if one other variable was introduced, such as somebody offering to pay him a lump sum to end it rather than continuing to be a burden on society as well as opening up a job for another unemployed person (which, of course, was the original intention of Social Security).

I don't quite have the story cracked yet. Still thinking about it.
quade -
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I think you have to also factor in that you are covered from the beginning for disability and or death benefits for your children.

A third of SS is paid out to people well before their retirement.



Except my story wouldn't be concerned with that.

What I'm concerned about is John Q. Everyman doing the calculus of his death. Whether or not it's actually worth it to continue and what would happen if one other variable was introduced, such as somebody offering to pay him a lump sum to end it rather than continuing to be a burden on society as well as opening up a job for another unemployed person (which, of course, was the original intention of Social Security).

I don't quite have the story cracked yet. Still thinking about it.



I don't think you ever get out what was put in. If all the money went into an account in your name for you only it would be plenty for you to retire on, since SS is not plenty for you to retire on the answer would be no you don't break even. If you are talking about just getting the exact dollars out you put in I would say yes but the number of years that would take would be dependant on your income and and what SS paid out to you.

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Without all the other "factoring ins"

Some one works for 45 years (22 to 67) and was in the exact middle of the income bell curve every year. What percentage of their pay went to SS? How much is the expected monthly check at retirement?
It seems like this is fairly straight forward. Unless it's these numbers that are hard to find.
Most of the things worth doing in the world had been declared impossilbe before they were done.
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Without all the other "factoring ins"

Some one works for 45 years (22 to 67) and was in the exact middle of the income bell curve every year. What percentage of their pay went to SS? How much is the expected monthly check at retirement?
It seems like this is fairly straight forward. Unless it's these numbers that are hard to find.



The Social Security web site doesn't appear to have any tools to do that. It does allow you to check your own contributions and predicted payouts, but I can't find anything on it that gives the formula for hypotheticals.
quade -
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