Back to Social Security

So, this guy does the math and finds that Bush's plan doesn't add up...

Just ask Stanley Logue of San Diego.

For 45 years, the defense-industry analyst paid into the system until his retirement in 1994. But with all the recent hoopla over reform, Mr. Logue, a Massachusetts Institute of Technology graduate, decided to go back and check his own records. Would he have done better investing his money than the bureaucrats at the Social Security Administration?

He recorded all the payroll taxes he paid into the system (including the matching amount from his employer), tracked down the return the Social Security Trust Fund earned for each of the 45 years, and then compared the result with what he would have gotten had he been able to invest the same amount of payroll tax money over the same period in the Dow Jones Industrial Average (including dividends).

To his surprise, the Social Security investment won out: $261,372 versus $255,499, a difference of $5,873.

It's an astonishing finding. The DJIA represents blue-chip stocks. Social Security invests in US Treasury bonds. Over long periods of time, stocks have consistently outperformed bonds. So, you would think that Logue's theoretical stock investments from 1950 to 1994 would have surely outpaced the return on government bonds.

The fact that they didn't illustrates one of the hard truths about stock investing: Timing matters.

And did you know that two-thirds of households where everybody there is 65 or older (i.e., no younger working spouse to support you!) get more than half of their income from Social Security payments? That a third of 65+ households get 90% of their income from Social Security?

So if you want lackluster returns, a Social Security system that's really in trouble, and a whole lot of elderly poor people (and remember, the 65+ population is booming!), go on and "reform" Social Security. Proceed with this cockamamie plan and let the fun begin!