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How The Government Robs You of 93 Percent of Your Potential Retirement Savings

How The Government Robs You of 93 Percent of Your Potential Retirement Savings

Per a recent Tea Party article, the average working person who retired in 2010 can expect to only see 90% of what they paid into social security back. For those who retire in 2030, only 84%. This got me thinking about retirement numbers.

The average person pays $10,000 every year into Social Security. If that money was not taken from them and instead they invested it in something that grows at a rate of 6% over 40 years, in the end they have $1.6 million dollars. Here is the math:

Year

Beginning Sum

Yearly Investment

Total Interest

Final Sum

1

 $                       -  

 $                     10,000

 $                 600

 $                  10,600

2

 $              10,600

 $                     10,000

 $             1,236

 $                  21,836

3

 $              21,836

 $                     10,000

 $             1,910

 $                  33,746

4

 $              33,746

 $                     10,000

 $             2,625

 $                  46,371

5

 $              46,371

 $                     10,000

 $             3,382

 $                  59,753

6

 $              59,753

 $                     10,000

 $             4,185

 $                  73,938

7

 $              73,938

 $                     10,000

 $             5,036

 $                  88,975

8

 $              88,975

 $                     10,000

 $             5,938

 $                104,913

9

 $            104,913

 $                     10,000

 $             6,895

 $                121,808

10

 $            121,808

 $                     10,000

 $             7,908

 $                139,716

11

 $            139,716

 $                     10,000

 $             8,983

 $                158,699

12

 $            158,699

 $                     10,000

 $           10,122

 $                178,821

13

 $            178,821

 $                     10,000

 $           11,329

 $                200,151

14

 $            200,151

 $                     10,000

 $           12,609

 $                222,760

15

 $            222,760

 $                     10,000

 $           13,966

 $                246,725

16

 $            246,725

 $                     10,000

 $           15,404

 $                272,129

17

 $            272,129

 $                     10,000

 $           16,928

 $                299,057

18

 $            299,057

 $                     10,000

 $           18,543

 $                327,600

19

 $            327,600

 $                     10,000

 $           20,256

 $                357,856

20

 $            357,856

 $                     10,000

 $           22,071

 $                389,927

21

 $            389,927

 $                     10,000

 $           23,996

 $                423,923

22

 $            423,923

 $                     10,000

 $           26,035

 $                459,958

23

 $            459,958

 $                     10,000

 $           28,197

 $                498,156

24

 $            498,156

 $                     10,000

 $           30,489

 $                538,645

25

 $            538,645

 $                     10,000

 $           32,919

 $                581,564

26

 $            581,564

 $                     10,000

 $           35,494

 $                627,058

27

 $            627,058

 $                     10,000

 $           38,223

 $                675,281

28

 $            675,281

 $                     10,000

 $           41,117

 $                726,398

29

 $            726,398

 $                     10,000

 $           44,184

 $                780,582

30

 $            780,582

 $                     10,000

 $           47,435

 $                838,017

31

 $            838,017

 $                     10,000

 $           50,881

 $                898,898

32

 $            898,898

 $                     10,000

 $           54,534

 $                963,432

33

 $            963,432

 $                     10,000

 $           58,406

 $            1,031,838

34

 $        1,031,838

 $                     10,000

 $           62,510

 $            1,104,348

35

 $        1,104,348

 $                     10,000

 $           66,861

 $            1,181,209

36

 $        1,181,209

 $                     10,000

 $           71,473

 $            1,262,681

37

 $        1,262,681

 $                     10,000

 $           76,361

 $            1,349,042

38

 $        1,349,042

 $                     10,000

 $           81,543

 $            1,440,585

39

 $        1,440,585

 $                     10,000

 $           87,035

 $            1,537,620

40

 $        1,537,620

 $                     10,000

 $           92,857

$ 1,640,477

 

If you got to retirement with $1.6 million dollars, in one year, the interest alone is $99,000. If you spent under $99,000 every year, you could live off of interest alone, and never spend any of your core nest egg; thus living indefinitely off of your money.

Instead, this $10,000 gets taken every year. After 40 years of paying into this system, you've given $400,000. If you only get 84% of this money back, you get back $336,000.

But it doesn't stop there. The government also inflates money every year; proudly announcing that it keeps inflation at a low rate of 3% every year. Over the course of 40 years, at 3% inflation, $1 loses 70% of its value. I include here a chart that shows how, at 3% loss in value year after year, $1 plummets to $0.30 in 40 years:

Year

 Dollar value

              1

                                                                    1.00

              2

                                                                    0.97

              3

                                                                    0.94

              4

                                                                    0.91

              5

                                                                    0.89

              6

                                                                    0.86

              7

                                                                    0.83

              8

                                                                    0.81

              9

                                                                    0.78

           10

                                                                    0.76

           11

                                                                    0.74

           12

                                                                    0.72

           13

                                                                    0.69

           14

                                                                    0.67

           15

                                                                    0.65

           16

                                                                    0.63

           17

                                                                    0.61

           18

                                                                    0.60

           19

                                                                    0.58

           20

                                                                    0.56

           21

                                                                    0.54

           22

                                                                    0.53

           23

                                                                    0.51

           24

                                                                    0.50

           25

                                                                    0.48

           26

                                                                    0.47

           27

                                                                    0.45

           28

                                                                    0.44

           29

                                                                    0.43

           30

                                                                    0.41

           31

                                                                    0.40

           32

                                                                    0.39

           33

                                                                    0.38

           34

                                                                    0.37

           35

                                                                    0.36

           36

                                                                    0.34

           37

                                                                    0.33

           38

                                                                    0.32

           39

                                                                    0.31

           40

                                                                    0.30

 

Adjusting the $336,000 into current year dollars, the actual value of money is $102,400. What could have been $1.6 million is now just $102,400. This is how the government robs you of over 93% of your potential retirement savings.

This is the difference between a growth model and a welfare model. Some are worried that the stock market is not a sure thing. I modeled the numbers such that, in the middle of the 40 years, the account took a 6% hit for 5 years in a row. You still come out with $1.1 million dollars.

Really, are you mad yet?

Amber Pawlik
June 29, 2013


On ‘Demand Side’ Economics: Why Spending Cannot Improve the Economy but Freedom Can
Amber Pawlik
This article seeks to explain as clear as possible one of the most intellectually difficult economic concepts to grasp: how inflation will destroy an economy. It is meant to give answers to the economics questions many people have today. It covers the basics of economics and then argues against the long held belief, originated by John Maynard Keynes, that stimulus money will jumpstart an economy. It can be considered an Economics 101 and 201 course.

This article is protected under the US Copyright Act of 1976. No part may be copied.

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