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Reply #16: Went about it all wrong.... [View All]

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KingLarryXVII Donating Member (13 posts) Send PM | Profile | Ignore Fri Dec-17-04 11:09 PM
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16. Went about it all wrong....
Edited on Fri Dec-17-04 11:13 PM by KingLarryXVII
lets take your $30,000 a year example...

Now this is assuming the same salary for the entire length of your career but lets look at working from 24 to 64 to keep things simple...

Lets put that $2250 (to be more exact than the 2500, i know you were just estimating) in an account at 5% interest. Do some basic algebra,

1.05^40 = 7.04 * 2250 = $15840 from you first years earnings, now we take the next year...

1.05^39 = 6.70 * 2250 = $15085, thats over $30,000, an additional years salary, from just your first 2 years of work, a little better than $19,200 (2 years on SS).

Now do all the math out and that $2250 yearly investment turns into a hefty $285,389.47

Lets divide that by 9600

$285,389 / $9600 = 29.72 or about 30 years

Now that means if you live past the ripe old age of 94, then Social security is a good investment. But when the average lifespan is in the seventies (maybe eighties for women now, I'm not looking this up) then for most people this is not the best investment for them.

This is with a 5% interest rate. Of course you could go for a higher interest rate for a little more risk, but i went with a low rate to prove that you can stay at a very low risk level and still make more than SS could ever give you.
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