My Mother Regrets Social Security Payments – Should She Have Invested Instead?

The Debate Over Social Security and Medicare

Dear Quentin,

I’ve heard my mother say that she would have had more money for retirement and been more well off if she hadn’t had to pay Social Security taxes and had invested the money herself, just like the woman who wrote to your column. In theory, that sounds smart, but Americans are not great at managing money. If individuals were solely responsible for their retirement savings, many would start too late in life. A lot of people already live paycheck to paycheck — even those who earn good incomes. There would inevitably be years when circumstances forced them to stop contributing.

And if the money were sitting in an account, people who lost their jobs would likely withdraw from their Social Security “savings.” We would end up returning to a time before Social Security, when many elderly people lived in poverty. Let’s also consider the companion benefit, Medicare. The same would apply if people had to self-invest for healthcare as well.

The bigger concern is what would happen if people over 65 had to obtain private health insurance. Think about how many older individuals have existing health conditions. Some could be paying $20,000 per month — if they could get coverage at all. What would a private insurer charge an 80-year-old with a history of cancer, heart surgery and other conditions?

There’s no way my dad and my mom paid enough into Medicare to cover my dad’s six months in long-term critical care, multiple angioplasty procedures and stroke. So the argument that people would be better off managing their own retirement and healthcare savings doesn’t hold up in practice. Medical costs would bankrupt most people.

A Reader

Rewriting History: A Fruitless Task

Rewriting history by retrospectively rewiring the Social Security and Medicare programs is a fruitless task. Your mother is theoretically correct in one sense: a person with stable employment, high earnings, disciplined investing habits, and favorable market conditions could potentially build greater wealth by privately investing the equivalent of their Social Security taxes in the S&P 500. They could make the same argument about house-insurance premiums.

Social Security and Medicare are not simply investment vehicles. They are, as their names suggest, social-insurance programs that guarantee lifelong income for all Americans, particularly low-wage workers, provide protection for disabled workers and their surviving family members, and spread potentially catastrophic healthcare risk across the population.

In reality, many people do not always invest consistently, retire during decades-long bull markets, outlive their savings, or face medical expenses that don’t eat into their life savings. So while a financially sophisticated minority might achieve better outcomes, millions of Americans would likely be significantly worse off without this mandatory safety net.

For those who don’t have a lot of savings, that obviously doesn’t mean they’re not hardworking or wouldn’t love to put more money aside. Only 6 in 10 Americans say they have money invested in a retirement savings plan such as a 401(k), 403(b) or IRA, either alone or jointly with a spouse, according to this Gallup poll. And 68% of non-Hispanic white adults have a retirement savings plan versus 42% of people of color, the researchers wrote. “Having a retirement savings plan and owning stock generally go hand in hand.” These gaps, in other words, reflect broader differences in access to wealth-building tools rather than differences in effort or ambition.

That’s where Social Security, essentially a national insurance pool created in 1935, and employer-based retirement plans like 401(k)s come in. The government siphons off 6.2% from your paycheck each month, and your company pays another 6.2%. There is a cap on how much of your income is taxed for Social Security, which in 2026 is $184,500.

Workers can contribute to a 401(k), a tax-advantaged workplace savings plan — if their employer offers one. Unlike Social Security, this money is invested in the stock and bond markets. Those contributions also use pretax dollars, which reduce taxable income. Many companies also match workers’ contributions up to a certain percentage.

The IRS allows you to contribute up to $24,500 a year to a 401(k), an account created in 1978 to help encourage workers to save for retirement. Those who are 50 or older can add a “catch-up” contribution of $8,000, bringing the total potential employee contribution to $32,500 (with an additional “super catch-up” provision for workers ages 60 to 63 of $3,250).

The Challenges of Healthcare

Still, a record 45% of U.S. households own stocks, according to Fed data. That’s helped by 401(k)s and similar vehicles that allow people to build up nest eggs by putting a small amount of money aside every year for 30 to 40 years. By some estimates, the average 401(k) balance is over $570,000 for someone in their 60s — but there are no guarantees with the market.

Medical debt can be a killer for people’s finances. Some 500,000 Americans go bankrupt every year and, depending on what study you read, anywhere from 40% to 60% or more of those cases are due to medical debt. Roughly 100 million people, equivalent to more than 40% of adults, have medical debt totaling over $220 billion.

Some of this is due to the complicated and sometimes bureaucratic system for making claims. In the past, the Consumer Financial Protection Bureau has received many complaints about collection notices for debts patients do not owe, even though those amounts were already paid or should have been covered by insurance or other financial assistance.

Medicare (Parts A and B) allows you to use any provider that accepts Medicare and requires about 20% coinsurance for covered outpatient services. Medicare Advantage (Part C) is a private plan that bundles Parts A and B (and often Part D for prescription drugs). It usually has an annual out-of-pocket maximum and sometimes offers dental and vision coverage.

Roughly 100 million people, equivalent to more than 40% of adults, have medical debt totaling over $220 billion.

Like Social Security, Medicare faces significant challenges related to long-term financial sustainability, coverage gaps, and complexity for people over 65, who are eligible for coverage. These issues are compounded by an aging population, rising healthcare costs, and substantial out-of-pocket expenses under both original Medicare and Medicare Advantage plans.

Before Medicare, private insurance markets struggled to efficiently price coverage for aging populations, whose health risks are significantly higher. Employees and employers each pay 1.45% of wages to Medicare, totaling 2.9%. Nearly a quarter of older Americans spend nearly $2,000 a year on out-of-pocket expenses alone.

Medicare Part B, which covers outpatient services, requires a monthly premium. Unless people enroll in Medicare Advantage or purchase supplemental coverage such as a Medigap policy, original Medicare does not include an annual out-of-pocket maximum. Older Americans can still face substantial medical costs even after enrolling in Medicare.

The argument your mother makes focuses on higher returns. Social Security and Medicare are a hedge against longevity, market volatility, disability and spiraling healthcare costs. Both programs, which were expanded under President Lyndon Johnson’s Great Society initiative in the 1960s, are designed to prevent poverty and unnecessary death in old age.

Your parents, like millions of Americans, benefit from that.