Terms

Rate of Return

The Rate of Return (or Return on Investment) is the amount one earns on an investment, generally expressed as a percentage of the amount invested. If one invests $100 and, after a year, that investment is worth $105 (including any dividends or interest paid), the rate of return is 5%. Because Social Security is not an investment or savings plan, comparisons of what one "earns" in the traditional plan to what one might earn by investing the money are deceptive.

Because the rate of return is measured over time, inflation will reduce the actual gain made. The rate of return, after correcting for the effect of inflation is referred to as the real rate of return. This is the term (and usage)we use throughout the Truth About Social Security web site except when quoting others who are referring to the return without considering inflation.