For a possible answer to this question I turn to my friend AI.
Before jumping to a conclusion, consider that Social Security is far more than retirement income for the worker. It provides disability and survivor benefits, family benefits even benefits to ex and current spouses. It’s also guaranteed and risk free and not dependent on the stock market. It does not depend on consistent, responsible actions of an individual over forty years.
This scenario assumes the worker earns 35% of the Social Security taxable wage base each year from age 25 to 65 (a full 40-year career with steady covered earnings, no major gaps). For 2026, the taxable maximum is $184,500, so earnings = 35% × $184,500 = $64,575 in 2026 dollars. Earnings grow over time roughly in line with the national average wage index (AWI, recently ~$69,847 for 2024, with ~4-4.8% annual increases in recent years), maintaining the 35% ratio as the base rises.
This earnings level is close to the current U.S. average or median for covered workers (~$65,000–$70,000 range in recent data), placing the worker in the middle-income category for Social Security purposes—where the program’s progressive formula provides solid relative value.
Payroll taxes (OASDI portion only): 6.2% employee + 6.2% employer = 12.4% total on earnings.
Annual Contributions (Rough Illustration)
• In 2026: Earnings ≈ $64,575 → Total payroll tax ≈ 12.4% × $64,575 ≈ $8,007 per year (or $4,003 employee-only).
• Over 40 years, with wage growth (~3–4% nominal on average, tied to AWI), cumulative contributions accumulate as a growing annuity. In today’s purchasing power (real terms), annual contributions average roughly $4,500–$6,500 adjusted.
Private Investment Scenario
Assume annual contributions invested in a diversified portfolio (e.g., low-cost broad stock index funds with some bonds):
• Long-term real return assumption: 7% annually (conservative historical U.S. equity real return after inflation; adjust down for more conservative mixes).
• Accumulated nest egg at age 65 (today’s dollars): From the full 12.4%, roughly $650,000–$950,000 (typical range from 40-year simulations for average/mid-income earners; varies with market paths and exact growth).
• From employee’s 6.2% only: About half, $325,000–$475,000.
• Sustainable withdrawal: At a 4% safe rate (inflation-adjusted, aiming for 30+ years), this supports $26,000–$38,000 per year from the full amount (or $13,000–$19,000 from employee portion), plus options for principal drawdown or legacy.
Stronger returns (e.g., 8–9% nominal) boost this; weaker returns, higher fees, or poor timing reduce it. Volatility (e.g., crashes near retirement) is a major risk.
Social Security Benefits Estimate
For consistent earnings at ~35% of the wage base (solid mid-level), the progressive formula shines.
• Indexed earnings produce a moderate Average Indexed Monthly Earnings (AIME) — roughly $3,500–$4,500 monthly (for full-career at this relative level).
• Primary Insurance Amount (PIA) at full retirement age (67), using 2026 bend points: $1,286 (first) and $7,749 (second).
• 90% of first $1,286 ≈ $1,157
• 32% of amount between $1,286 and ~$7,749 (most of AIME falls here) ≈ $800–$1,100
• 15% of any excess over $7,749 ≈ $0 (little to none)
• Total PIA ≈ $2,000–$2,500 per month (or $24,000–$30,000 per year), plus annual COLAs after claiming.
This aligns with or exceeds the average retired worker benefit (~$2,000–$2,100/month recently, adjusted for 2026). Replacement rate: For ~$65k pre-retirement income (today’s equivalent), SS replaces ~40–50% — strong due to progressivity favoring middle/lower earners.
Comparison: Often Better with Social Security
• Financially (potential income): Investing the full 12.4% privately could produce comparable or somewhat higher retirement income under good market conditions (e.g., 20–40% more annually possible with solid returns). The employee’s 6.2% alone usually falls short or roughly matches SS.
• At this 35% level (near average earnings), the scales tip toward Social Security for most people when including real-world factors: zero market risk, automatic inflation protection (COLA), guaranteed lifetime payments, built-in disability/survivor benefits, spousal protections, and longevity insurance (no outliving your money).
• SS’s implicit real return is low (~1–3% for recent cohorts), but the guarantees and insurance value often outweigh higher-but-risky private returns for mid-income workers. Many analyses (SSA data, think tanks) show the current system delivers better effective outcomes for average earners than privatized accounts would, especially accounting for behavioral risks, fees, and lack of protections in private setups.
Bottom line for 35% of wage base: It’s close, but Social Security usually comes out ahead overall—particularly for risk-averse folks or those valuing certainty. Private investing the full taxes might edge it out financially in optimistic scenarios, but you’d sacrifice the safety net. The lower the earnings percentage (closer to average or below), the stronger SS performs relative to private alternatives.
As worker income rises, the theoretical benefit favors investing over SS as far as retirement income goes … assuming everything goes according to plan for forty years a rather unlikely possibility in my view.
QUINNSCOMMENTARY 