Annuities vs. Social Security

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My right-brained, accountant husband stayed home yesterday because it snowed. We started talking about the number of people who attack Social Security as an inefficient retirement fund and insist they could do much better on their own.

Just for the heck of it — because he loves math and me — my hubby unearthed his most recent annual Social Security statement and plugged the numbers into a spreadsheet to test how his accumulated Social Security compares to a conservative investment of the same amount of money outside Social Security. He was surprised to learn that Social Security isn’t such a bad deal after all.

Hubby listed his taxable wages beginning in 1963 on the spreadsheet. In the second column, he put the annual percentage of Social Security deducted from his wages — it’s changed over time, from 3.32 percent the first year he paid in to 6.2 percent last year. He calculated his annual contributions and his employers’ annual contributions based on his wages. Then he totaled the contributions.

Next, he assumed that Uncle Sam would invest the money in 30-year Treasuries, and he plugged in interest on the accumulated money based on the Treasury rates, calculating a purchase every six months and reflecting the actual change in rates. Finally, he added up the annual totals and a grand total.

He took that grand total and plugged it into and got a monthly payout for a single male, age 66. He compared that number to what Social Security says he’d get at 66.

According to, he would be able to take his total accumulated savings and purchase an annuity worth $3,427 paid monthly beginning at age 66 for the rest of his life. If he wanted to share the money with me, he could get a joint-lives payout that would pay $2,828 until we both died. There are no inflation adjustments during that time, and when both of us die, the insurance company gets to keep what’s left.

By comparison, Social Security will pay my husband $2,415 monthly beginning at age 66. If I didn’t have my own Social Security, I could claim half of his — $1,207 — for a family total of $3,622. That’s $794 more than the private annuity would pay us. Plus, the Social Security money is indexed for inflation. When one of us dies, the other gets the highest amount of the two payments. When both of us die, the government keeps anything that’s left.

By my lights, Social Security is clearly the better deal.

The Bush administration wanted to partially dismantle Social Security and let people invest at least some of their contributions in the stock market. I haven’t heard much about that plan since the market went south in 2008. But some regular posters here still suggest that they could do better on their own. And maybe they could. But Social Security is a program designed to protect all of us, including those of us who don’t have what it takes to save and invest money on our own. I think that’s a retirement planning blessing.