No. of Recommendations: 2
Bob says, "what you're describing is a defined benefit pension plan. They're used all over the world." You can't buy one as an individual, but plenty of people use them to fund their retirement.
And Bob also says, "I can offer you a way higher return than Social Security with these products [Bob hands you 50lbs of documents and binders]".
It's not a feature ad. The purpose of Social Security isn't limited to making sure that you only have enough money to avoid poverty in your old age. It's not an individually-directed retirement account. It's a program intended to make sure that everyone in your life has protection against poverty in your retirement. So it consists of: i) your retirement benefit; ii) a lifetime disability insurance product; iii) a spousal benefit product; iv) a minor child disability product; and v) a surviving minor child benefit. You don't get to just disaggregate them.
And that's typical. Offer me something I don't necessarily need at a rate that's more expensive than if I had just bought it myself, which was the point of my original hypothetical from my 30's. Let me keep HALF my money and not only will I drop off this particular grid, I'll be much better off.
The delta between the T-bill average yield and the SS return nets out to be about $25k/year. I'm pretty sure you can find all three of the products you mentioned for less than $25 grand a year. Especially if you had taken the money you were putting away and diverted some of it into a variable life annuity. In which case 100% of the money you'd extract via a loan against the policy would have been tax free.
Add in the tax advantages (at least 15% of your social security income is always tax free), and you'd have a hard time duplicating that package if all of your funds were in a private investment account with 100% risk-free assets.
And this is the rub. Most people accept that some amount of risk in life is acceptable and...a part of life.
At any rate. The deal I offered in my 30s is off the table so this discussion is somewhat moot.
