Coke Zero ® is my favorite Cola drink. I also like Regular Coca Cola®, but because of the sugar content, I very rarely treat myself to one. I drink more water. It is better for my general health in several ways. For example, I’ve lost quite a bit of weight simply by reducing my intake of sugars and bread. This reduces the wear and tear on my joints and on my heart.

There is one COLA that rarely satisfies. It is Social Security COLA. Social Security is the only annuity I will ever own. Of course, I did not get a choice in the matter. Over the course of my working years (1969-2014) I paid $136,137 in FICA taxes. Knowing what I know today, had I invested those dollars in an S&P 500 fund with a low expense ratio (not possible for many years) my total savings from just my FICA contributions would be close to $900,000.

The Federal Government isn’t a very good steward of your resources. I will have to live to be a very, very, very old man to get anywhere close to $900,000 back from my FICA tax “investment.” So far, after about six years of drawing Social Security I have received about $112,000 in income, but then the government taxes me on that income and so I don’t get to keep all of it. Will I break “even” in a couple of years? Not really.

Why should you care? Two reasons:

  1. Don’t buy an annuity voluntarily unless you completely understand that you are buying a life insurance product that essentially will benefit the insurance company and their agents far more than you will benefit. The additional “riders” to make them better are expensive. Riders are optional enhancements that are available on your annuity contract at an additional cost. Often these include an income component or death benefit you must pay for. The standard death benefit is often “return of premium.” Think of that as the worst possible return you could get. If you are paying into Social Security, you already own an under-performing annuity. You don’t need another one.
  2. Don’t be fooled into thinking the “sweet” COLA Social Security provides will satisfy. They usually take it back in extra Medicare premiums. Therefore, if you are still saving for retirement in a 401(k), IRA or ROTH IRA, keep doing it. Bear in mind, as well, that the government’s calculation of the increased cost of living do not match the reality of most of us.