This brief set of calculations from the Wall Street Journal’s Ellen Schultz shows simply how much of a raw deal American workers have been getting from defined-contribution retirement plans. It is impossible for them to generate the rate of return of a defined benefit plan, just completely impossible. Schultz shows this in the context of Social Security:

Despite widespread gloom over the health of the system, it will be still be able to pay at least 70% of benefits in coming decades, even if no action is taken.

That means you need to take the benefits into account when estimating your retirement income, how much you’ll need to save and how to allocate your investments to achieve your goals.

A 50-year-old man, for example, might have accrued a Social Security benefit worth $1,750 a month at full retirement age. Assuming annual cost-of-living adjustments of 2% a year and a life expectancy of 90, the present value of his Social Security benefits would be $588,551 if he starts taking them at age 62, and $802,039 if he begins at 70, says William Meyer, founder of Social Security Solutions, a Leawood, Kan., financial-planning firm.

To generate the same amount of income they would be receiving from Social Security taken at age 70, the individual would have to pay $436,517 today into an immediate annuity, says Mr. Meyer.

This says more about the futility of 401(k)-style plans than the adequacy of Social Security as a social insurance program. Social Security doesn’t provide the best benefit in the world. But the universality of the program, the lifetime of payments and the simple reality of defined benefit retirement programs make it a far better deal for workers than providing a sum of money to play with in the stock market. And this is the program you get when the payroll tax is capped at the first $110,000 or so of income; raising the tax cap and plugging that money into not only the long-term funding situation but increasing benefits would make this even more stark.

Most people have next to no retirement savings on their own. They rely on Social Security, and you can argue how they would manage retirement without the safety net program. But you cannot argue that they could get a better, safer return on investment. And it’s affordable to the government simply by changing the dynamic that Bill Gates does not pay into the system at the same rate as a guy earning $110,000 a year. Increasing inequality is more responsible for the long-run funding gap in Social Security than virtually any other event, including the baby boomers retiring. 93% of all compensation gains in the recovery from the Great Recession has accrued to the very top. Practically none of that money flows into the Social Security trust fund. Fix that, and you fix the problem.

I was glad to see AFL-CIO President Richard Trumka take a hard line on this today.

What is the grand bargain? It boils down to lower tax rates for rich people — paid for by benefit cuts for Social Security, Medicare and Medicaid. These are precisely the issues that are being debated so vigorously in the campaign, and voters do not want anything to do with such a deal [...]

When I hear people say we need to cut Social Security benefits, I wonder whether they know that millions of people lost their retirement savings in the Great Recession and that traditional pensions are increasingly hard to come by. Do the benefit cutters think seniors are sitting around wondering how to spend their lavish retirement benefits — now averaging the princely sum of $14,500 per year? Do they think near-seniors are suddenly realizing that their savings and pensions are much more secure than they had ever imagined possible? Are the people who want to raise the retirement age aware that life expectancy for Americans who lack a high school diploma is actually declining? Do they understand that raising the retirement age is a benefit cut, no matter what age you retire?

No wonder voters aren’t interested in such a raw deal.

Social Security Card — Image by © Royalty-Free/Corbis