Heading Out

Seeking the winds that help to sail on Shakespeare's tide.

Tuesday, February 01, 2005

Social Security and Real Dollars

In the ongoing discussion on how much more us mere mortals will make if we invest in the market, I had previously pointed out that having invested a little more than the recommended amount over the course of my career I can give an actual return, over 37 years, rather than a projected one. However this return (which turns out to have yielded about 5% growth) was subject to the same sort of limitations as the Social Security funds are likely to be. In today's editorial on the subject in the NYT Paul Krugman points out that my calculation does not include inflation. I had just run a small Excel spread sheet which looked at the money we had put in and what average return on investment would be required to give the current value of our account.

As I once discoved when doing an economic analysis of the solar heating system we had installed on the house, there are some facts that I think I would rather not know. Given that there have been a couple of fairly steep inflationary periods over the past four decades our choice was perhaps not optimized. But then, given our current negative experience with our new "financial advisor" and that some of the changes we made were under the financial advice of those who run the portfolios for faculty here on campus, I am not sure that we really had a better alternative. Likely the same will hold true for the Social Security funds. I suspect that in the end it is not the average American that this scheme is out to make rich.


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