If private investment is a bad idea as your "economist roundup" shows,
why should I privately invest in your social security?
Private investment is a bad idea of course, but what are you going to do if you have money to save? You've got to put it somewhere and the SSA won't
let you pump up your benefit calculation by overcontributing to FICA.
SSCs are an ingenious way to
enjoy all the great benefits of a Social Security investment with your extra savings.
I'm nervous about your prospects. Shouldn't I just rely on my Social Security and mine alone?
One word: diversification. Buying SSCs allows you to
spread out the risk of individual income fluctuation and other
forces that can affect a Social Security benefit.
How do I know these dividends will get paid?
SSCs are a legally binding contract. In fact they are
more binding than Social Security's promises to you.
Social Security can change
the terms, even cancel benefits completely, and you have no recourse.
So I'll be getting dividend checks from you in 2040?
Not necessarily. My date of retirement is not fixed. SSCs only
promise that you'll get a dividend starting at whatever point
the SSA begins sending me benefits.
What if you go back to work after you start receiving benefits? How will
this affect your FICA totals in computing my dividend?
It will affect the dividend the same way it affects my benefit.
Whatever kind of check I receive, your dividend will be based on how much FICA I have paid throughout my life, period.
Again, this is exactly the level of uncertainty and risk you are accepting from the SSA with regard to your own
FICA contributions.
What about the Medicare portion of your FICA?
The Medicare portion of FICA is not included in the deal because of the difficulty in calculating the return on Medicare. The SSC offer only covers the the 12.4% of FICA that is for Social Security and Disability. My graphs and charts that show return at retirement only consider the 10.6% that is for retirement.
Will I have to pay FICA on your dividends?
No.
Isn't Social Security just an insurance policy?
ssa.gov states:
"The Social Security retirement program insures against loss of earnings from work and not against the failure to have investment income."
You are right in that the SSA claims it is insurance.
But everyone who participates gets paid, even if they do not suffer a loss of earnings, which isn't exactly how insurance works. So in a very real sense, it is a return on an investment, more like an annuity or pension.
We can call it insurance, an annuity, a pension,
an investment, a gamble, an entitlement, or a benefit.
I'm just passing on the SSA's fantastic offer to you for half the price, whatever we choose to call it.
Why do you base SSC dividends on FICA when Social Security
does not calculate benefits that way?
Benefits may not be calculated on FICA, but that is a specious
disconnect because your lifetime FICA is
certainly what you paid for it. In the final tally, there's what you
paid in, and what you took out. Period. All the accounting voodoo in
between is interesting, but doesn't change the reality.
FICA contributions are the only fair way to valuate SSC dividends.
Why should I buy an SSC for $50 now when they will be worth more if I wait
until the year before you retire?
They won't. All future issues will be sold for an amount equal to $50 in 2005 dollars. I have a chart that explains this. For example, if you buy an SSC in 2038 it will cost you $132.62 for the same dividend that $50 would have bought you
in 2005. That is the power of early investment in Social Security!
I thought my FICA was only 6.2% but you seem to be calculating DOUBLE that amount. What gives?
If you are an employee, your employer picks up the other 6.2% of your FICA. It's no different than paying it yourself.
Every junior economist in the world will tell you that your salary would be 6.2% higher if your employer didn't pay the FICA. There really
is no dispute over this.
The self-employed pay it in full of course.
For purposes of SSCs, FICA is calculated at 12.4% whether you are self-employed or not, because that is the real economic burden on all workers.
What about survivor's benefits if you die tomorrow?
I have two children, so my wife will qualify, and you'll get a dividend
from my wife's survivor benefits. I'm not wealthy,
but for a reasonable price I have purchased a term life insurance policy
that will be used to make the dividend payments on survivor benefits should I die unexpectedly.
What if you become disabled?
Social Security has two different programs for disability, called SSDI and SSI.
SSI is a program funded from general revenues, which means your FICA has nothing to do with it, and as such if I receive SSI there will be no dividends on that paid from an SSC.
SSDI is the Social Security Disability Insurance program and if I become disabled an SSC will pay dividends from that. Note that this is unlikely to happen, as I mention in the prospectus.
An investor might wonder how I plan to live in such a case. First,
I'll only be paying dividends on a portion of my check unless I sell enough SSC's to cover my lifetime FICA to date. Here's a table showing some estimated numbers for that amount for someone my age.
| 2004 income | Est. FICA to date |
| $20K | $20,596 |
| $40K | $41,317 |
| $60K | $58,057 |
| $80K | $77,426 |