In The Uncounted Trillions in the Inequality Debate in the Wall Street Journal, Martin Feldstein points out that if the value of Social Security and Medicare were included, the net worth of the bottom 90% in the U.S. would go from $20 trillion to $95 trillion.
Here’s a slice from his opinion piece:
Individuals pay high payroll taxes—directly and through foregone wages—to finance the current system of pay-as-you-go retiree benefits. By my calculations, the implicit real rate of return on those payroll taxes will be less than 3%. That is substantially less than the 5.5% real return earned historically by contributions over a working life to an individual IRA or 401(k) plan invested in a balanced combination of stocks and high-quality bonds.
In other words, enact government programs to help the bottom 90%, yet ignore the value of those programs when measuring outcomes for the very thing they are intended to help.
Further, using that incomplete measure, these programs are contributing to inequality. As his example points out above, we come out 2.5% behind annually for every dollar that we pay into Social Security rather than investing in a 401k.
Yes, yes…but 401k returns aren’t guaranteed. So, come up with a safe government investment for those who are concerned about that.