Don’t Read This If You Would Enjoy Old Age Poverty: The lack of saving and investing now could ruin you later

Social Security is the primary income for millions of elderly Americans. The average Social Security payment is about $1,400 a month or about $16,800 a year, according to the Social Security administration. Millions of elderly Americans, who believed that the government would take care of them, only have Social Security as their income source. Many of them are having a rough time.

That’s because, even living in the cheapest part of the United States, it is incredibly difficult to survive on less than $17,000 a year. These people, some of whom my wife and I know, have a very difficult existence. For them, these are anything but “the golden years.”

It is much the same in many advanced welfare states, where people have grown to believe that the “government will take care of us;” that there is no need to accumulate any considerable private resources.

The Road You Don’t Want to Take

Is old age poverty in your future? Is this what you want? More importantly, why are these people in this mess of depending on Social Security? The basic answer is that they believed in the shaky promises of politicians who come and go.

The principle problem with Social Security and most other government programs is simple: They’re not very good. From public schools to government trains to welfare programs often the public sector is neither good nor accountable. More importantly, the government forces people to put money into a retirement program called Social Security that can’t effectively compete with private sector alternatives.

Most people, especially if they started in middle age or maybe when young and had years ahead of compounding their savings and investments, would be much better off building up private savings rather than depending on the public sector for retirement income.

Let Sammy Handle Your Money

Why not depend on good old Uncle Sam to take care of you?

Well, let’s begin with the fact that Uncle Sam isn’t a very good money manager. He runs huge deficits and has accrued what he says is some $20 trillion of debt—I think this is a bit of Enron accounting; that it is actually much more—and now he has a Social Security program that is running in the red despite years of Social Security tax increases. Uncle Sam is forcing a very bad deal on American workers.

Remember, Social Security is mandatory. You never have a chance to opt out for something better. And with good reason—millions of Americans would prefer to get nine percent to one percent over the long term if they had the chance for private investments.

Do as I Say not as I Do

By the way, this private is often superior to public idea often operates in other parts of our society. Indeed, many political elites brag about the virtues of public education or public transit. But when do you see the ruling class on the E-train? And how many of our political elites send their kids to private schools?


Why is private saving for retirement superior to depending on a government? Look at the opportunity costs. This is the cost of putting your money in one thing—a government program—opposed to another, private investments.

False Promises?

Social Security—which invests in special government bonds, which really aren’t bonds but simply the promises of a government today to pay a generation that retires in years in the future—returns about one percent.

By contrast, the stock market, over the long term, tends to return about nine percent a year. Over the long term there is a huge difference between one percent and nine percent; between depending on a government to take care of you in old age and building up your own private assets.

Besides the stark numerical difference, there is another huge difference. Social Security has no legal obligations to you. The government can and has changed the amounts and other conditions of payments. For example, when our grandparents collected Social Security they paid no taxes on their payments.

Why should they? They had already paid into the system for decades.

However, since the 1980s, owing to one of the periodic crises of Social Security, the program now taxes most recipients. (I still don’t know why this didn’t cause a tax revolt).

But private savings belong to you; they are your property to spend and manage as you see fit. So why not start building your own private savings and stop depending on the government? The latter is often populated by seedy career pols. The latter come from both the left and the right. is suspicious of both major governing parties, who are united in their efforts to keep out new parties.

Our career pols are perpetually looking to win elections and not looking out for the best long-term interests of the average person. He or she is someone unlikely to make six figure contributions to their campaign funds.

Why So Many Get in a Fix

However, here is the problem with so many retirement plans of millions of young, middle-aged and even some elderly non-retired: They are not starting early and building substantial assets. (How about putting $500 a month into a qualified retirement account for thirty years at age 35? At age 65, earning 9 percent a year, you have $922,000!)

The problem is they don’t consider amassing private assets an important goal.

What Problem?

You can’t solve any problem unless you first acknowledge that you have a problem. Millions of the elderly who rely on Social Security for their sole income know they have problems. It may be too late for them.

But millions of young and middle-aged people, who are saving nothing or very little for retirement, don’t seem to think they have a problem. They should look around at their elderly neighbors and talk to those who are living on Social Security and nothing else. Then they should remind themselves of the following: “That could be me in 20 or thirty years.”

Then ask themselves this: “Is this what I want?”