The maximum contribution for 2016 is $14,694.00. You have to include the employer's contribution. If your employer did not have to contribute this, you would receive this as increased wages.
I lived through the Act 10 legislation that was passed in Wisconsin in 2011. I can guarantee to you that a slash in benefits(here I mean everything an employer pays less salary) does NOT immediately translate into an increase in salary. If you have bargaining power, a select few might be able to renegotiate that lost benefit back into salary, but buy and large, the reason for slashing a benefit is not to increase wages, it it so the paying organization(company,district, state, etc.) can spend less. I challenge you to take ANY benefit your company provides to you and try to turn it into the equivalent cash in your paycheck. It is not unheard of but becoming harder to achieve. But even if you DID assume the full amount went directly to you.........
If one invested $1224.50 per month for 20 years and had a 5% annual real return, then that would be worth $510,164.71. If one had a 7% real return, the total would be $644,554.88
You did what I did... assumed the same contribution throughout 20 years. That is fine to get us started, but the real math will be quite different. For example, in 1996, only the first $62,700 of wages is used to calculate your contribution. In 2016, the first $118,500 is. I could go year by year to find the max wages, and the actual dollar amount someone that year would have maxed out, but I really wanted a calculator that already did that. I could not find one. That is also why I requested the amounts that packlawer04 actually paid, since it was his/her claim that he would be better off starting over and relinquishing everything paid to SS thus far.
Another consideration is risk. You can get market returns if you are willing to assume risk. There are countless things to consider with regard to SS and you cover many of them in your post. I address several of them below. When we are talking about the quality of life for our elderly, I am less willing to take on risk. If my investments tank, I will go back to work. An 80 year old can not do that. I am willing too assume that risk (but not for my expected spending for the next 4 years). The 5% figure you stated sounds pretty aggressive. Many are suggesting using 5% stock market projections over the next decade due to the recent 7 year bull run. I would be more inclined to be conservative with this kind of money and as a result I would be likely to decrease risk substantially. I would expect growth more similar to bonds and annuities and use a rate of about 2% - 4%, unless we change the program to say payments become a guarantee. I do NOT recommend this.
How is pay as you go the opposite of a Ponzi scheme?
As I said, is is not. But a ponzi scheme collapses. Pay as you go does not collapse, it pays less unless changed. It is equally unfair to call SS a ponzi scheme as it is to call it the opposite of one. It is also not correct to call SS a banana. If someone makes that claim, I would propose SS is the opposite of a banana. We would both be equally incorrect.
What would happen if everyone in the US stopped working?
Money coming in would be reduced to 0. Under current rules, excess contributions would be distributed at a faster rate, until all is distributed. Then payments would go to 0 ( I am guessing here... I do not know if rules are in place for 0% of the population having income). This is not a very realistic exercise, but many of your other questions are not only possible, but probable.
What will happen if the money coming in is less than the money going out?
I think that is what IS happening now. You pay reserves until exhausted, then pay what you collect. I think the more important question should be: What do we want to do if we see this coming? We did see it coming about 50 years ago. We decided to make some pretty big changes in 1983, and make other smaller changes along the way. That pushed out the date revenue failed to exceed payments but that date has come, and we are now there.
The new question being considered is how far can we push the date out where we can not pay 100% of expected payments. If we do nothing, that date is the year 2035. I believe the current republican plan estimates that date to be 75 years out. Here is a great article that lists many of the changes from the past 80 years:
http://money.usnews.com/money/retirement/articles/2015/08/10/how-social-security-has-changed-over-80-yearsNotice how the discussion is no longer "what if revenue is exceeded by outlays". That is now considered a given for the foreseeable future.
The 75% argument is built on a lot of assumptions.
It certainly is, as are ALL projection and estimates. If SS is unchanged, that 2035 date will ebb and flow and is will be projected downward and upward many times until 2035. I would assume if Trump is successful in his 4% GDP growth goal, that date could move decades beyond 2035. We'll see.
What happens if the fertility rate plummets?
It has for decades. That is the main reason why revenue no longer exceeds outlays. The nice thing about this question is that as it changes, projections change and you have DECADES to make changes. We choose to make some changes, but not enough to eliminate the problem. This is probably the best example of "kicking the can down the road".
It is interesting to know that even with the lowered birth rate, the largest generation in population is the Millennials. It is on this stat that I think the US is best positioned for the next 50 years as compared to other nations of the world. Maths really does provide some interesting facts sometimes.
What happens if labor force participation declines substantially?
I am sure is has at times, and also exceeded it at times. This is one of the factors in that 2035 date changing with time.
My personable opinion is that the world is about to enter a transition whereby automation will change the workforce in ways never before seen in humankind. We will simply need less people to do what MUST be done. I believe my children will see 40%-50% unemployment while the country still sees tremendous progress. That is why the jobs claim made by Trump fell on deaf ears for me. Has anyone seen any of the videos of the Tesla plant? Where are the people?
https://www.youtube.com/watch?v=8_lfxPI5ObMManufacturing jobs are not coming back long term. One possible solution will be to have half of the unemployed dig a hole and have the other half fill it up the next day. Not exactly productive, but they are working :)
How will this effect SS? I have no clue.
What happens if real GDP growth is lower than projections?
Again, I think it has at times, and also exceeded at times. These fluctuations will continue to change the 2035 date.
Great questions to ponder. Thank you for engaging. Would you be willing to post YOUR actual SS contribution history? This discussion has me thinking about doing it myself, though not before the end of the year. We'll see what the new year brings. That said, my expected SS payments with regard to retirement is $0. I do not believe it will be $0, but I have planned for it just in case. In that regard, my risks for SS has actually become 0. I am pretty confident my future SS payments will lie somewhere between $0 and current projections. Time will tell.
