Friday, September 19, 2008

Social Security ROI

My father-in-law mentioned that he had a number of acquaintances who had unreported incomes for years, and now were suffering because they had reduced Social Security earnings. In theory, those tax cheats would have still come out ahead, had they just had the discipline and foresight to set aside some of their undeclared income for retirement. Of course, that is theory, it often doesn't work that way in messy human practice.

That got me thinking, though. 15 years ago I read that people currently retiring were, on average, getting the equivalent of a 30% return on their Social Security witholding, whereas people just entering the work force could expect a return of between -3% to 0%. 30% is quite a rate of return. Would those people seen a large NPV had they declared all their income, and payed into Social Security, and reaped that 30% rate of return? I'm too lazy to work the math, but it seems like they probably would have.

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