From: jfh@rpp386 (John F. Haugh II)
Subject: Re: Social Security
Reply-To: jfh@rpp386.cactus.org (John F. Haugh II)
Organization: Los Tejanos SCUBA Club and Beer Joint, Austin, Tejas
Distribution: tx
Date: Tue, 29 Dec 1992 01:33:44 GMT

In article <BzyC75.72K@NeoSoft.com> paul@NeoSoft.com (Paul Hutmacher) writes:
>In article <Bzvw5J.1KEo@austin.ibm.com> curt@ekhadafi.austin.ibm.com (Curt Finch 903 2F021 curt@aixwiz.austin.ibm.com 512-838-2806) writes:
>>It's a little perverse isn't it?  The richest segment of our
>>population, the aged, receive continuous handouts from young wage
>>earners far in excess of their own contributions when those same young
>>people have not a prayer of ever collecting this freebie themselves.
>
>Oh pooh.  That same argument of not having any social security left for 
>the contributors is the same one used two generations ago.  They're the
>ones now collecting.
>
>I for one am going to hedge my bet and contribute heavily to my 401k
>though.

The more frequently that Curt and Co. repeat this tired old line, the
more I think about Social Security and what the benefit and funding
implications are.

One of the items which I recently worked out was the cost of providing
for "orphans" benefits.  Using the 1958 mortality tables, between ages
30 and 50 (that's a nice range for people with children ...), there
will be about 76 deaths per thousand population.  Assuming the mortality
rate is constant (it isn't, but the discrepancy is in our favor, so I
don't care to work it out ...), that's an average of 3.9 deaths per
thousand.  The average benefit payout would be 10 years (20 / 2 = 10),
and the average amount (using large fudge factor) is about $1,722 per
month (widow + 2 orphans, assuming grieving widow doesn't work and
dead husband made about $30K - an average middle class income).  That's
$206,640 per dead wage earner.  Since this is spread out over the
remaining 92.4% of the population =without= a dead wage earner, that
works out to a cost of about $16K per wage earning on a lifetime basis.
Spread that out over 47 years (ages 20 to 67), and you have a whopping
$340 per year in FICA needed to pay for those dead fathers.

Now, let's compare $340 per year to the cost of life insurance that's
available from private sources.  I pay (age 30, non-smoker, married,
white male) about $2 per thousand of term life in annual premiums
(nice round numbers, you milage and rates may vary).  For $206K of
"coverage", I would pay $412 per year.  Since Social Security is only
running me $340 for the "same" coverage, I'd say I'm getting a not so
bad deal.  Again, big round numbers - but they do begin to shed some
light on the popular myths that Curt is peddling.

I used to make some of the same mistakes I suspect Curt is making.  When
I was married before, my step-kids got $700 per month each.  I took that
$1400 and divided it into the money I was paying in and concluded that
it was taking quite a few wage earners to support them.  But when you
look at the real mortality figures, the real mortality rate for 30
year olds (my ex-wife's dead ex-husband's age when he died) is about 2
per thousand.  That it takes 5 or 6 wage earners to support that woman
is just fine - because there are 998 other 30 year old wage earners
who aren't going to die and need benefits for their 2 kids.  Even when
you multiply it out by the 20 years kids are elligible, you still don't
get enough "orphans" to make a difference.  You still have an average of
962 wage earners able to support an average of 87 children.  And =that=
ratio is smaller than the number needed to pay for the benefit.

I don't expect Social Security to be as great a program as it was when
I was a kid.  But I am starting to see that Social Security isn't some
program which diverts money from the poor down-trodden masses and
deposits it into the hands of undeserving rich slobs.  To the contrary,
Social Security is just another stupid welfare program that works far
worse than what private individuals are capable of doing.  My wife will
never collect a cent on my account, should I die.  Why?  Because I
don't see her giving up her job just because I'm dead.  That means I'm
paying my $340 per year for NOTHING!  Plus, I'm paying a few hundred
for a term life policy that I wouldn't have to have if Social Security
wasn't such a rip-off for us working stiffs.

These sort of analysis are some of what needs to be done to 1) disprove
the popular paranoia and 2) disprove what Fred claims about how the
government can do better than the private sector and for less money.  A
poor slob worker is already paying more than $340 per year for his
children's orphans benefits (FICA on minimum wage is about $1,100 per
year).  But if he dies, he kids are not going to get the $206K in benefits
that $340 per year is buying.  And if he dies after 47 years of paying
all that in, he probably won't get what he put in (less that $340 that
was paying for his "insurance").  Someone making $20K certainly won't!

(($20K per year * .13) - $340 per year) * 47 years = $106,220 paid in
$10,536 per year * 8 years = $84,288 paid out

Again, about 80 cents on the dollar - even with the "widows and orphans"
benefit cost taken out.
-- 
John F. Haugh II                  [  TSAKC  ] !'s: ...!cs.utexas.edu!rpp386!jfh
Ma Bell: (512) 251-2151           [ DoF #17 ]        @'s: jfh@rpp386.cactus.org