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Education investment needed

November 11, 2008 - Lee Smith
The baby boomers are retiring and Social Security is about to create an even greater economic drag when the federal government stops taking in enough money to cover the payments it makes to retirees. Benefits will be cut or taxes will be raised. Possibly both.

It astonishes me that people live so fearfully that they believe Social Security is an admirable system. It's not. After working for 40 years, the returns you receive on the amount of Social Security taxes you have paid is dismal. And yet people continue to hold to the illusion that this is preferable to making investments over the course of a lifetime. Somewhere, somehow, America has done a terrible job instructing its youth about simple concepts such as reinvestment and compound interest. Today we hear so much about science and math being subjects that will drive our economy in the future. But that's only if we have an economy nimble enough to work. It won't under entitlement burdens.

The uninformed will shoot back that if retirees had been invested in the current stock market, their savings would have been wiped out. Ridiculous. Sound investing transfers funds to safer assets, such as bonds, as retirement nears. But even if we accept the uninformed argument, investing trumps Social Security. In 1967, the Dow Jones stood at 1,000. In 2007, it was near 11,000. Even now, the Dow is around 9,000. Someone who began their career in 1967 and invested soundly over time would have made lots of money. Lots. Had they been allowed to put their Social Security withholdings into the market, they would have made even more.


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