You left out the part if the 2nd guy is disabled and cannot work, that the only money he would have coming in would be the money and interest that he has paid into his 401K, while the person paying into SS would be able to collect a lifetime pension just as if he worked until age 67 to 70 depending on the year he was born, starting the month he was declared disabled.
I am more tolerant of the disability insurance elements of Social Security than I am the old age income elements of it. You could have the former without the latter very easily and only need to collect a fraction of 12.4% of your income that the system currently collects from workers and employers.
That being said, disability insurance was a financial product that people bought before Social Security came into existence. Why not mandate employers have to buy disability insurance for their employees based on the actuarial risk of the work? After all, a bank won't give you a loan for a home without insurance on it and you can't drive a car on the road without insurance, so why not for having employees, too?
Plus, Social Security's version of disability insurance is higher cost than it needs to be. The product could be cheaper if the "insurance company" (really SSA) was investing at a 5% return instead of a 0% return like it is. So there's even an inefficient cost for the program beneficiaries baked into that aspect of it.
You are making a huge assumption that people that rely on SS to pay their bills will invest that 10-12%. I agree that I would prefer to have that money to invest, but many don’t have that discipline.
I do think this is a fair and good faith concern.
But suggesting a compromise...
Still collect the money. But make the default an S&P 500 index fund and not U.S. bonds.
Long-term real rate of return more like 5-8% instead of 0%.
My father never received any Social Security because he had railroad retirement instead. And the Railroad Retirement Board works like SS -- mandatory contribution of a certain share of your income -- but then it invests the money on behalf of beneficiaries to generate a return. The RRB something like a 6.5% return on his savings throughout his lifetime, which was worth (to give vague ranges out of modesty) something between $500,000 and $1 MM once he reached the typical retirement age.
There's a reason the RRB (and the railroad unions) have resisted being folded into Social Security and demanded their separate system remain separate for decades. They have smart accountants and attorneys that have told them how much better their special system is than general SS.
