January 29, 2007, 7:42 pm

In my post earlier today, I analyzed my recent social security statement and found that the government was giving me a -0.8% (yes, that is negative) rate of return on my forced savings. You can read that post for the methodology, which I admit was simplistic (I have a day job, after all) but I still think is pretty accurate. There is not getting around the fact that the government is forcing

a retirement program on you that is such a ripoff that a private company would likely get

prosecuted for offering it.

One of the arguments I have seen go back and forth, and that I refer to in that post, is whether Social Security is a retirement plan or a welfare program (its a floor wax and a desert topping!) One of the reasons this argument comes up so much is that its defenders take both sides of the question, depending on whom they are arguing against. If you argue that as a welfare program, Social Security is terribly inefficient and pays too many benefits to richer workers, they argue it is a retirement program with premiums and you can't cut benefits to anyone who has paid in. Argue as I did in this post that it is the worst retirement program in all of America, and its defenders say that you can't analyze it that way because there are welfare benefits embedded.

So I wondered, could I solve this with numbers? I stared at my belly button for a moment, and decided that 6.5% was a good conservative private return number that I would be willing to plan my retirement around. I plugged this number into my spreadsheet (Download socialsecurity4.xls) and found that my social security premiums, invested privately, would yield an annuity at 67 of $11,699 per month, or an amount 5.89 times larger than social security is currently promising me for the same inputs. This tells me that only about 17% (1/5.89) of my taxes in social security are going to my own retirement. The other 83% are going to a huge welfare program, either directly, as payments for someone else's retirement, or indirectly, through the inherent government inefficiency you accept when you provide intellectual welfare (I define "intellectual welfare" as the government doing something for you because it doesn't trust you not to screw the task up if you did it yourself -- in this case, the task is saving for retirement).

Postscript: As pointed out in my postscripts and the comments to the original post, taxes, inflation, spouse survival, etc. all complicate the analysis, but most of the effects work both ways. For example, Social Security provides some benefits to surviving spouses I don't include. That potentially understates the value of the SS package. However, as pointed out in the comments, private savings would be inheritable by my family in the case of my early death, and would dwarf SS survivor benefits in most cases. Ditto for disability benefits.