Social Security vs. Private Retirement

A large part of your Social Security taxes goes towards a forced savings plan intended to provide Americans with money for retirement. Economics professor Antony Davies looks at the Social Security system, and discusses alternatives that may provide Americans with more retirement money and more financial security.

To evaluate the merits of Social Security, Professor Davies examines how much average Americans will earn in social security benefits relative to how much they will contribute. As it turns out, social security is a very poor option: the average worker will earn an annual return of only 1.2% percent on his social security taxes.

Imagine, however, if workers weren’t required to pay into social security. If a worker took the money that would have gone to social security taxes and invested it in the stock market himself, he could expect to earn a lot more; upwards of $500,000 dollars more.

According to Davies, phasing out Social Security would enable government to honor its obligations to current retirees, shut down a program that costs half a trillion dollars each year, and allow Americans to transition to a system that would provide more safety and a better return on investment.

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