Social Security is not only the largest asset of most retirees, it is the largest expense in retirement planning for the vast majority of workers. Between the two, someone should be asking the question: What do I get for my contributions?
To answer that question, you have to compare the expected value of the benefits from Social Security against how much money your client would have had if he or she had invested contributions in an interest bearing account. The Urban Institute, a nonpartisan policy think tank in Washington, D.C., provides insight into that question. Their research includes both employee and the employer matching contribution in total cost, and looks at the value of expected future benefits discounted to the present. In the net you see how much savings that you lose in order to get a dollar of benefits.
The return of Social Security varies widely by person. For example, a single man earning an average wage ($44,800 2013) and retiring at 67 in 2030 expects to receive roughly $341,000 in lifetime benefits. Those benefits will cost the worker $411,000 in lost savings. In this case, the average worker traded roughly $1 of savings for $0.83 of expected benefits. A single woman in the case above expects to collect about $0.90 per dollar of lost savings because women expect to live longer than men. Social Security compensates people who are married; increasing the expected return by a few cents to as much as $0.55 per dollar of lost savings depending upon how much the spouse contributes to Social Security.
Keep in mind, the data shows an average return in a world where few people are actually average. Within Social Security, high-wage workers subsidize lower-wage workers, single people subsidize married ones, and long-careers subsidize shorter careers. For example, the average worker in the research is never unemployed, where as many Americans are unemployed. So the research is more of general guide than a specific figure.
