Recently, I did a Mini Thought on the true cost of an employee. Since then, I’ve seen an increase in discussion on X regarding retirees who rely on Social Security, contrasted with those complaining about the disparity between what they pay in vs what they receive.

So of course I want to look at the math. I think I’ll utilize the $50,000 and $100,000 employees from before. We’ll assume that those were the averages after their working career. It’s also worth noting that ten years ago, the Social Security wage cap was $118,000; today it’s $184,500. This is a significant increase, but important to note that if you make above that number S.S. no longer comes out of your paycheck and the employer portion also does not continue.

We know that S.S is 6.2% for both the employee and the employer. We’ll calculate age 62, 67, and 70 (the cap for social security credits) social security and we’ll also calculate living till age 80, 90, and 100. Lets also set our working careers at age 22 for 4 year college degree age. That’s a 40, 45, 50 working year career.

Lets start with the total amount paid into Social Security before we even attempt to look at payouts. I also want to compare with that same money in an S&P 500 matching fund. $50,000 is $3,100 per year. $6,200 with employer match. $100,000 is $6,200 per year. $12,400 with employer match. FYI. 40 years would be 1986, 45 is 1981, and 48 is 1978.

Working Years	$50,000 Salary	$100,000 Salary	$50k S&P 500	$100k S&P 500
40	$248,000	$496,000	$4,067,725	$8,135,450
45	$279,000	$558,000	$8,122,981	$16,245,962
48	$297,600	$620,000	$13,200,000	$26,400,000

Because the $100k figures are double the $50k data, we can see that even if we only tracked the employee’s direct contributions ($250,000 to $297,000), that capital could have grown to between $4 million or $13 million invested elsewhere.

The $50,000 would be $124,000, $139,000, and $148,800. Invested into $2 million, $4.1 million, and $6.6 million.

Lets say Social Security was forced to be paid into a Bond fund. Tracing data back to 1978 presents some challenges, so we’ll utilize the 10-year US Treasury Bond as our benchmark.

Working Years	$6,200/y Bonds	$12,400/y Bonds	$3,100 /y Bonds
40	$634,460	$1,268,921	$317,230
45	$1,050,427	$2,100,855	$525,213
48	$1,489,254	$2,878,509	$700,000

I’m going to use the Social Security official calculator to track payouts. I also want to STRESS how important in the day and age of identity theft that you should 100% google social security .gov and sign up your account regardless of age and track your contributions.

Income	Born 1956 (50 working years)	Born 1959 (45 working years)	Born 1964 (40 working years)
$50,000	$2,068.00 per month	$1,799 per month	$1,131 per month
$100,000	$3,248 per month	$2,814 per month	$1,745 per month
$50k Annual	$24,816	$21,588	$13,572
$100k Annual	$38,976	$33,768	$20,940

For the $50,000 earner their salary is cut roughly in half at full retirement and max retirement, and roughly a quarter of their salary at early retirement. The $100,000 earner is around 35% of their salary down to 21% in early retirement.

We’ve established what a “forced government bonded investment” could look like from Social Security, and “Simple S&P 500 Index” growth. The final task is what will a person pull out of social security in their lifetime. Especially in comparison to what was paid in.

Age Started	Passed at 80	Passed at 90	Passed at 100
$50k 62 (Early)	$244,296	$380,016	$515,736
$50k 67 (Full)	$280,644	$496,524	$712,404
$50k 70 (Max)	$248,160	$496,320	$744,480
$100k 62 (Early)	$272,220	$481,620	$691,020
$100k 67 (Full)	$438,984	$776,664	$1,114,344
$100k 70 (Max)	$506,688	$896,448	$1,286,208

In every scenario, the total amount paid into social security is exceeded by age 80. By age 90, it becomes mathmatically impossible for your contributions, even including the employer match over a 50-year career — to cover the payments received.

Incidentally, if you had just your own contributions forced into a US treasury bond that magically stopped growing the moment you started taking S.S. it wouldn’t run out until almost age 100 for the $50,000 per year earner, and the $100,000 earner is still $200,000 below what their own contributions would of reached. That’s ignoring the employer portions entirely.

I was not expecting that.

If you had to make only the person’s contributions grow to what they would pull by age 100. The highest rate would be a 6.09% rate of return (50k 40 years) and the lowest needed 4.83% (48 years $100k salary).

~~Miniwing~~
Shocked, Investor, Parent, Stoic