There are, in fact, government bonds backing the social security “trust fund”. Some call them nothing more than IOUs, but that is what all bonds are. The real question is; will the government honor these bonds, and if so where will they get the money?

At least I think so.

The clearcut answer is right there: replenish those funds
with a new law which restricts the funds for the American
people. Congress is made up of representatives of we,
the people. They make no sense when to undo the law they
created for us. Bernanke told them about 80 million more
boomers will retire beginning in 2008, and the funds will
be broke in ten to thirty years.

A fund is not a fund if the funds are allowed to be used
for other purposes. So, the Congress we elected created
a law which made the funds solvent and then the same
Congress broke the law which benefited us, the American
people. I doubt they would want their own personal retirement
funds to be treated the way they continue to treat the Social
Security and Medicare funds of the American people. Our own
representatives are robbing us of secure retirements
and continue to tax us for a bogus fund. They are guilty
of creating a Ponzi scheme of the worst dimensions.

This is not rocket science, and does not need reduction
of benefits nor increase of taxes. The answer is simple
and not even Economics 101. Stop the talk and just do it:
fund the funds and leave the money in The Social Security
and Medicare Funds. Leave the funds alone for the
American people.

I agree with your caution to use real after-tax rates of return when estimating retirement savings. But Craig merely misread the 2-9% to read nominal before-tax rates, I think, while Michael Sullivan meant real after-tax rates.

If the stock market goes up 10%, and you lose 25% of that to taxes, and inflation was 3%, you’d have a 4.5% return, right? If the stock market goes up 8%, and you lose 4% of that to taxes, and inflation is 2%, you’d have a real after-tax rate of return of 2.8% right?

I find people generally overestimate their what their real rate of return is likely to be in a taxable account. If the account is tax-deffered, who knows what the tax rate will be when the money is withdrawn? People also tend to forget to account for the fact that they will often move money to less risky investments as they get closer to retirement, so using the expected return for equities for the entire investment period is probably not a good assumption for many.

I’m around 30, and when I run the numbers for my retirement plan, the one thing that becomes readily apparent is that my assumptions about rate of return, future tax rates, and inflation have way more impact on my chance of success than the amount of money I currently have invested and am investing on an annual basis. When I input a range of (my perception of) reasonable assumptions, some say that I don’t need to do anything beyond SS and my Defined Benefit pension plan, and some say I need to save 30% of my income. The biggest problem is that I’m tempted to put an expected value of zero on my pension and SS benefits, which makes planning for retirement very difficult.

Anyone know if it’s legal to sell the rights to your future SS benefits?

You would have to be a horrible investor to get a 2% long-term return on stocks. Over the long term, the stock market returns 8-10%. Put your money in some low-cost index funds, and you’ll probably do better. 5% is quite conservative, considering these numbers. One could get 5% investing in bonds.

I really wonder what your definition of “reasonably prudent” is.

One thing I add, though: run your spreadsheet through today and see what your heirs get back if you and Mrs. Coyote die tonight. Compare that to the SS benefits they’ll get. My wife and I have paid in about the same as you and our two grown boys would be due nada.