I was curious as to how good a deal Social Security will be for me compared to what i might have gotten by investing the money myself.
Here's the method and results
I'm 45 and been working since i was 16 (30 years of income). I've put about 90K of my income into SS so far. So i figured what the cash value of that would have been if i'd invested in the Dow stocks over that time (about $145,000 (290K with the employer match). I did not account for the expense of the account being maintained, but i also did not account for dividend reinvestment. I'm guessing the dividends would be higher than the fees since this would be a simple index fund where expenses are less then 0.5%. So i think i'm being conservative there.
Now i have to estimate what things'll look like in 22 years. Assumptions...
1% raise per year (and i keep my job)
SS maximum taxes goes up 1% per year
SS tax rate remains 6.2%
Stock returns of 5% per year in the future (compared to 8.5% over the last 30 years, again being conservative)
My SS benefit (based on the SS form) keeps increasing by about $85 / year
So by age 67 i will have contributed just over 250K to SS + another 250K in employer match.
My annual SS benefit would be about 52K and my life expectany at 67 is ~15 years. So counting future inflation benefits, the value of my SS is about 800K. Add in another 100K for survivor benefits for the wife who should outlive me by 2 years. My expectation is to get out about double what i put in.
Otoh, had i invested the money it would have grown to 700K PLUS another 700K from the employer contributions for a total of 1.4M. That money would continue to earn some interest (i assumed a safe 1%) duing retirement while i live off it. With the same 17 year retirement and collecting the same money, i would die and leave my kids over 600K.
I think my SS benefits will be taxed but i don't know if it would be more or less favorable to the rates from 401K withdrawls. I'll figure that out in 20 years.
My actual mileage may vary.