I was saving for retirement (I think I managed $4,000) when I was making around 30K as the sole income provider for my family. What your figure doesn't fully represent is that that is not the case for everyone - as the average household income is around $51,000. The reason, being, of course, that a large number of those Walmart-esque jobs are held by second-income-earners who work part time.
Originally Posted by EarlzP
however, fortunately for you, I ran the numbers on what would occur if we were to convert a portion of the FICA tax into a tax-free personalized account as I suggested:
Joe graduates High School and goes to work, making 25,000 a year. Not anyone's idea of incredible pay, but there you are. Joe gets' a 2% raise every year to account for his increasing talent, experience, etc. The 10% of his income goes into a mix of funds that matches the S&P 500 Combined Annualized Growth average since 1982: 7.98% (after you account for inflation). If Joe retires nice and early at 62; his retirement fund will be worth $1,030,110, and if placed into an annuity / conservative account that generates a 5% annual return, his monthly benefit will be $4,292. That would be slightly less than his last monthly paycheck of $4,979; but still quite livable. If Joe works until he's 65, his monthly benefit will climb above his monthly income to $5,473; and if he decides (as most of us probably will) to delay retirement to 68, he's looking at a monthly retirement check of $6,966.
And remember, Joe isn't exactly one of society's higher paid workers.
But he also had the advantage of time. Let's say instead Joe went to two years of college, and got an associates before entering the workforce to earn that 25,000; and let's say that instead of 2%, Joe turns out not to learn new skills that well, and his annual raise above inflation is actually 0.5%. We're stacking the deck a little against ole Joe, but he still seems to come out okay; his monthly benefit at age 62 is $3,050; at age 65 it's $3,875; and at age 68 it's $4,915. It's worth noting that under this model, the most Joe ever made was $31,672 in a given year; and that his monthly retirement benefits at age 65 represents a $1,200 monthly pay increase over his monthly income. Even if Joe retires early at 62 he will have more in income off of his account than he would from working; and the longer he chooses to keep working, the greater, obviously, his return is.
AND ALL THIS WITHOUT COSTING OLE JOE A SINGLE RED CENT. since the money was cash he was losing to taxes in the first place, his take-home pay wasn't reduced one iota; but because we partially privatized social security, Low Income Worker Joe can retire a millionaire...
fortunately, I ran that scenario as well:
And who knows thier is no guarantee that a crash or recession in the market won't reduce or totally wipe out a person 401k savings
...If the market tanks right as Joe was planning on retiring, he can work for an extra year while it rights itself, or simply choose to draw less from the account in order to leave more in there to ride the upswing. OR, if Joe makes the worst decision possible, at the worst time possible and withdraws all of his money while the market is at the low point on the trough (say, a 40% drop, similar to what we just saw), to purchase a 5% annuity... then his monthly income in our worse-case scenario at age 65 will still be more than twice what the average worker (whose benefit would be greater than Joe's) could expect from Social (in)Security.
glad to help.
SS can not be touched until a person retires at least insuring some kind of income for many poor and elderly people.
what you are missing is that social security benefits are calculated off of what you have paid into the system. those workers who were at Walmart or MacDonalds making $7.50 would have had a much better return off of private investment in an S&P 500 index fund than they would have had from SS - because their SS benefit is going to be abysmal.
I will repeat myself again SS is the best thing that has happened for many millions of Americans, so if you are among those who can invest in 401ks have at it I hope your investments pay off handsomely so that you can afford to keep spending in your retirement years, those less fortunate may need to work at Walmarts or MacDonalds to supplement thier SS checks