Stocks and Bondage

How Social Security stacks up against stocks and bonds

It's no surprise that stocks and bonds provide a much higher return than Social Security. But a new study by the Cato Institute, Retiring with Dignity: Social Security vs. Private Markets, makes it clear just how much workers are losing. The study calculates that high-income workers born in 1950 would receive $9,972 per month in 1995 dollars if they could have invested the wages that went to pay their Social Security taxes in the stock market. That's more than six times what they are scheduled to receive under Social Security. Workers who earn half the average national wage are also big losers under the current system. They could retire on $2,440 a month, but will have to make do with Social Security's $631.

The study makes conservative projections for the rate of return on stocks (10 percent) and bonds (7 percent). In addition, the study assumes that Social Security benefits will not decline and that payroll taxes will not increase. Since the system will be bankrupt by 2030, such a scenario is extremely unlikely.