Thread by @PMatzko

Just a reminder that if we had individual social security accounts, almost everybody could retire as a millionaire.

Let's use the example of Jill. She makes $25,000 a year, and we'll posit that she never makes any more than that.

Social security costs her 12.4% (6.2 directly, 6.2 indirectly) of her earnings, but in our example that money will go into a government mandated investment account composed of index funds.

That means Jill will contribute $3100 a year. Let's say that she does so from the age of 22 to retirement age at 68. At the historical average, inflation-adjusted, annualized return of 7%, she will retire with $1,017,496.

And by the standard 4% withdrawal rule, Jill will likely have enough money to fund her entire retirement and still leave some left over to her heirs. Indeed, Jill will "earn" significantly MORE in retirement than she did while working.

And if she dies early, all of that money goes to her heirs, a generational legacy of incredible socio-economic uplift for her children and grandchildren.

This could be an ordinary story. It is mind-numbingly, eye-boggling, rip-your-hair-out dumb that we haven't reformed our social security system to make it so.

But we almost did! We were one handshake deal in the 90s between Newt Gingrich and Bill Clinton away from getting it done. But then the Lewinsky scandal broke and the window started closing.

For that longer story: libertarianism.org/podcasts/build…

A friend challenged me noting that a 7% return isn't guaranteed. What if the stock market underperforms its historic average?

Good question. Let's run the numbers.

Here's the worst case scenario. The worst S&P 500 annualized return for a 40 year time horizon started in 1969. It was a very sad 4.2%.

fourpillarfreedom.com/heres-how-the-…

If Jill had been 22 in 1969 and then we replayed the scenario above, the result when she retired 46 years later would be: $433,472.

Not nearly as good, no. But at a 4% withdrawal rate, that means she'd make $17,339 a year in retirement. Which is still higher than the $14,928 she make using the traditional social security system. (And, of course, she'd still have the additional benefit of heritability.)

And, of course, it's veeeeery questionable whether Jills of the future will even get that much out of our social security system given the underpopulation crisis. We're currently looking at 25% benefit cuts in the next decade if nothing changes.

In other words, the absolutely worst case scenario for individual accounts is still significantly better than the absolutely best case scenario for social security as usual.