New Performance Metrics for Social Security?
Social Security is a life annuity or regular-payment annuity in the United States. It is an earned benefit from years of substantial contributions. Your estimated return on your payments to Social Security is just under the initial payment value, adjusted for inflation (using inflation estimated by the CPI).
As a life annuity, Social Security performs comparably with many annuity products offered by private life insurance companies. It performs better than some products and worse than others.
As always, it’s interesting to me that citizens hear two starkly different messages about the facts of Social Security. One side claims that Social Security is a Ponzi scheme — a fraudulent investment scheme — while the other says they’re just trying to responsibly help workers meet their retirement needs.
The best case that Social Security is actually a fraudulent investment scheme rests on the notion that the size of the paid earned benefits can change. Many, if not most, private sector life annuities change the value of earned benefits over the course of the contribution period. In other words, this is a normal term in the contract. The paid value of the earned benefits can change for many reasons, the most common of which is the method to index the benefit to inflation or other indices.
One of the unstated (to most citizens) assumptions for Social Security is the rate of growth in the country. When the country grows GDP at a high, sustained rate, Social Security becomes a better deal for society. One of the problems today is that the Baby Boomers failed to achieve the sustained GDP growth rates assumed by the Social Security two-period optimization formulas for calculating the Social Security benefits. The Baby Boomers won’t pay for this failure. My generation and subsequent generations will.
Social Security rarely gets discussed in terms of performance metrics. It might be more interesting to see this in political discussions more often.
