Sunday, April 23, 2006

Solving social security

One tall red-eye* and a scone. That will be $4.13.

Can it be that simple? The retirement security of the average American coffee drinker has been undermined by Seattle’s greatest export, the Starbucks Culture. Not to take anything away from Boeing––Seattle’s other export engine––but even as it flies below the radar screen of the average American’s budget, the cost of coffee in the morning has become significant.

Do the math. $4.13 per day. Assume cost inflation at 3% per year––modest for coffee, but let’s be conservative––put that together with stock market returns that have averaged 12% per year over the past 30 years. What do we get?

Retirement security. Or lack thereof.

Here is the choice. Coffee and a scone each morning beginning at age 25, or take the same amount each day and invest it in an index fund a retirement fund until age 65. 40 years later, the Starbucks Investment Program––“Your retirement security is just a SIP away”––produces a nest egg of just under $2 million, or a monthly annuity approaching $10,000 for life.

That amount, it is worth noting, is anywhere from one and one-half to two times the monthly benefit that the Social Security Administration projects for a worker who enters the workforce at age 25 with a salary of $40,000 to $60,000 and retires 40 years later.**

So, drink up America. That coffee is more expensive than you can imagine.

* The drink of a real coffee drinker. A cup of coffee with a shot of espresso.
** For a $40,000/year beginning salary, the projected monthly benefit at age 65 is $5,160. For a $60,000/year beginning salary, the projected monthly benefit at age 65 is $6,569. (

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