Social Security is…

Even paying $1 in SS tax results in negative outcomes.

A few months ago I posted on X about how you should begin withdrawing Social Security as soon as possible, for a reduced monthly payout, instead of waiting for full retirement age.

If I contribute to SS until I’m eligible to withdraw, I’ll have paid $732,591. If I withdraw as soon as I turn 62, it’ll take 12 years (age 74) before I start making a single penny. If I wait until full retirement, I’ll be 76. Moral of the story: withdraw as soon as possible!

This is fairly simple math.

You can start withdrawing SS “early” at age 62, but at a reduced monthly withdrawal for the rest of your life (around 30% less).

If you wait until 70, you’ll get ~30% more per month. But this has two huge downsides: you’ll have sacrificed 8 years of withdrawals, plus you just don’t know when you will die! Ends up, it is always best to contribute as little as possible and start withdrawing as soon as possible, especially since “none knows the day or hour” of anything, much less his demise.

Not surprisingly, posts like this attract naysayers from the woodwork. But I have done the math and they have not.

You’ll pay a lot in Social Security taxes, and you won’t get much of it back.

12.4% of an earner’s wage goes into Social Security. That’s not a small amount: over their lifetime, the average earner will pay $704,856 in Social Security taxes. That same average earner should expect to withdraw $383,000 from Social Security. That means he’s in the hole for around $321k.

That’s just the bare numbers. It’s even worse, considering that you don’t make interest on that money over the course of your career. If you had invested $704,856 in the laziest manner possible, directly into the S&P500, from the ages of 22 to 65, by retirement age you would have a staggering $10,704,933.

It doesn’t really matter how you massage these numbers. I’ve looked at them from front to back, top to bottom. Social Security is only “profitable” for low earners, and the reason it even works is because it is unprofitable for the majority of earners.

Social Security is only “profitable” if you make under $66,050/year for your entire life, and that’s not factoring in what you could have gained from investing it. It only works because it’s subsidized by every single person making over $66,050.

If you do the calculations considering opportunity cost: Social Security is not profitable at any income level. That’s right. If you pay even $1 in Social Security taxes, you are behind what you could have done by opening a Fidelity account.

Social Security is only profitable for someone who pays zero taxes.

Unfortunately, that accounts for 37.5% of working-age Americans who are not employed or looking for work, yet will still somehow collect Social Security benefits when they reach the age of eligibility.

That missing $321,000 that you won’t get in Social Security benefits goes to pay them: those who have never paid a dollar into Social Security, as well as helps cover the benefits for the share of Americans who are productive, yet made less than $66k a year.

Social Security is nothing more than a welfare plan for those who have never been employed. It is a penalty on everyone who ever paid a single dollar in tax.

What can you do about it?

Obviously, I would love if Social Security was abolished, but I’m not going to waste time dreaming of impossibilities.

I’d even accept a buyout: if I were able to accept a one-time payment of everything I’ve paid into Social Security, in return for not being able to withdraw anything at retirement, I’d take it into a heartbeat. For that matter, give me 50% of what I’ve paid in. While we’re fantasizing, just cancel my whole thing and keep whatever I’ve paid. It would literally be more profitable for me if I lose everything, but don’t have to continue contributing for the rest of my career.

I can do a lot more with that cash flow during the next ~25 years. Nearly anything would be a better investment. Simply buying an index fund would outperform SS, but honestly you could probably buy a Mickey Mantle baseball card or a Superman No. 1 comic book or a 1965 Mustang - pick your vice - and somehow be ahead.

So what can you actually do about it?

Often, business owners can convert from an LLC into a S corporation. Say your business makes $250,000 a year. Since Social Security taxes are only charged on payroll, you can give yourself a reasonable salary, say $100,000, and take the remaining $150,000 as distributions. You’ll only pay Social Security on the $100,000 salary.

For employees, there’s zilch you can do. If you’re in a position to take a lower salary and accept equity/stock instead of cash, that helps mitigate the issue, but this isn’t really an option available to lower income positions.

I suppose you could complain to your local governmental representative, but they’re too busy getting wined and dined by Pfizer sales reps.

Or you could simply stop working, lie down, and hold your mouth open below the faucet of productivity, which always leaks a few drips of cash in the direction of sloth.