SS savings plan

When the discussions of how to save social security (SS) come up, one area that is pointed out it that stock holders have averaged 11% return over the past 50 years, while wages for working people have stagnated. The conclusion is that stockholders should be assessed to pay for the SS shortfall. Another way to look at the problem is to realize that if SS had been privatized 50 years ago the people not just the stockholders would have earned 11% and SS would not be in trouble. A little math shows that if that had been the case, people retiring today would have a greater benefit just from the interest from their account and would be able to pass on the principal to their heirs. Here is one example. A man starts work at age 22 and earns $40,000 and his wages increase 3% per year and he invests 8% of his wage at 11% return, how much will he have in 40 years and the answer is $2.5 million. If he lived off the interest which at 11% would be $275,000 per year, he could then pass on the $2.5 million in principle. In contrast his social security benefit would be $2,000 per month or $24,000 per year. Even if the man only earned one percent on his principle after retirement, he could still collect the same as SS but he could retain ownership of the principle. SS is 6.2% of wages matched by the employer but 2.2% must be set aside to cover disability claims and survivor benefits leaving 8% to invest. We could start to privatize SS next year and it would take 40 years to convert all workers over. Since 1986 all federal employees have participated in the Thrift Savings Plan, where their savings have been invested in stocks and it has been a resounding success.