Social Security Now Takes More Than it Gives

Social Security has reached another critical threshold: For the first time, a typical husband and wife retiring today can expect to collect less in benefits than it paid in payroll tax over the course of their life.

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AP

Miss Ida M. Fuller, 76, of Ludlow Vt., is the first person to receive increased benefits under a new social security law.

In many ways, Social Security is an undervalued asset. Spouses benefit even if they never worked for pay. Kids benefit if a parent dies. The disabled get paid for life. Above all, Social Security provides lifetime income in retirement—an increasingly rare component of today’s patchwork retirement system.

But it is now official: Social Security is a lousy investment for the average worker. People retiring today will be among the first generation of workers to pay more in Social Security taxes than they receive in benefits over the course of their lives, according to a new analysis by the Associated Press.

Looking at numbers from an Urban Institute study, the AP found that a married couple retiring in 2011 after both spouses earned average income during their lives paid total Social Security taxes of $598,000. They can expect to collect $556,000 in benefits, if the man lives to 82 and the woman lives to 85. This is another landmark turning point sure to enliven the debate over how to fix Social Security, which without changes will be insolvent by 2033.

Another look at Urban Institute numbers suggests that the average working family still enjoys a positive return when factoring in Medicare benefits. And plenty of workers will continue to enjoy a positive return on their lifetime Social Security tax payments—women more than men because they live longer, among other factors. And because benefits are progressive, low-income workers will continue to receive a positive return. For high-income workers the return went negative two decades ago.

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The possibility of a negative return was never contemplated when Social Security started making regular payments in 1940. Then, payroll taxes were low and benefits were robust, and people didn’t live so long in retirement. With 42 workers per retiree, there was plenty of cash flowing into the program. So it was that the first Social Security recipient, Ida May Fuller, was able to collect $22,888.92 in lifetime benefits after paying a mere $24.75 into the system during her working years.

By 1960, there were still 4.9 workers paying into the system for every beneficiary collecting—and the typical family could expect to collect seven times what they paid into the system. But as the number of retirees began to grow and life spans expanded the strain became apparent. Still, as recently as 1985 workers across the board could expect a positive return on the tax.

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But today there are just 2.8 workers per Social Security recipient and that number will fall to 1.9 by 2035, according to the Congressional Budget Office. People no longer routinely die at 65 but live well into their 80s. To compensate, payroll taxes that were just 2% in the 1940s have risen to 12.4% today (half paid by your employer), which is another reason that you stand to collect less than you paid.

What can you do about the negative return? Live longer, for one thing. Social Security payments continue until you die. Lose weight. Stop smoking. Exercise. You’ll get more than just a better return on your tax dollars; you’ll save on medical costs, too. And don’t take Social Security benefits before age 70, if you are in good health and can afford to wait. Every year you delay, your monthly benefit rises by 8%, giving you a good shot at an even bigger lifetime payout.

MORE: What’s Driving Americans to Retire Abroad? Money — or Lack of It

13 comments
Jannsmoore
Jannsmoore

I guess the author finds absolutely no value in having the younger generation help out the older generation. Yeah, if you just want to throw them into the streets, then SS and Medicare are a bad "investment." Fortunately there are a lot of Americans who think human beings are more important than money and realize if we didn't provide SS and Medicare for the elderly, the younger generation would have to anyway.

rustydud
rustydud

LMAO this is a bunch of baloney.  How about factor in inflation which means our money loses its purchasing power.  Example - 20 years ago money bought twice as much as it did today.  Come on now this sounds like a piece written by the SSA.

Oud Doherty
Oud Doherty

This article is pure BS!  It states, "...the AP found that a married couple retiring in 2011 after both spouses earned average income during their lives paid total Social Security taxes of $598,000. They can expect to collect $556,000 in benefits, if the man lives to 82 and the woman lives to 85."  I've been working for 51 years garnering Social Security benefits.  According to my SS Statement, I've paid in $194,000 in taxes from both my own and my employer.  I've earned more than an "average income" in my working years - 20 year military officer, 14 year airline pilot, 10 years as a consultant.  People with "average incomes" do not pay in almost $300,000 in SS taxes.  Using the SS Administration's actuarial tables for my age and my SS-defined payout, I'll get back some  $444,000.  That's a far cry from "Social Security Now Takes More Than it Gives".  Whoever wrote this nonsensical article ought to be ashamed as should Time Magazine for publishing it.  Check your facts!

Firozali A.Mulla
Firozali A.Mulla

It is not just EURO , USA too is hit hard by the economy and the prices of the houses are falling bad I thank you Firozali A.Mulla DBA

Firozali A.Mulla
Firozali A.Mulla

Houses for

sale at price you can afford????It would not surprise any if you read this. It

is the “In cities particularly hard hit by the economic

downturn, chronic vacancy levels have reached historic highs. What with that

whole supply-and-demand phenomenon, that means lower prices on some otherwise

desirable homes. Virginia's capital, Richmond, which has more than 15% of its rentals sitting

vacant. In D.C., two hours north, that would be a small price to

pay for 4,200 square feet, six bedrooms, 5.5 bathrooms, and all the historic

charm one might expect from a house built in 1911.  Detroit didn't manage to make the top three on the list

of ghost town cities, but other influences have property values way down in

Motown. 6,500-square-foot 

is asking just $69,000, Built in 1922, the manse still hangs on to some decent

curb appeal and has the plumbing for seven bathrooms  Memphis might

have a legendary music scene, but that's not doing much for its rental market

at the moment, where 15% of properties sit vacant. The city's high crime rate is

possibly to blame,  The

10,000-square-foot mansion on Main Street was carved out of a former commercial building  On the market for a little less than a year,

this incognito palace is on the market for $4.6 million. Dayton,

Ohio, has the highest

homeowner vacancy rate in the country, at 5.4%, so it's pretty amazing that the

broker babble for had the

gall to call it "one of the nicest properties to become available in

recent years," given the sheer number of homes available in Dayton  the house is still listed for $235,000.

There was no way that Florida, with its high number of second homes and

seemingly higher number of foreclosures, was going to be left off this list.

Theme park capital of the world Orlando takes the dubious distinction of also being the

country's biggest ghost town, with a rental vacancy rate of almost 19%. Thankfully, the city has

managed to keep its cash reserves up, so there's little chance it will be

headed to bankruptcy soon. That means adventurous buyers with an eye for a deal

could make out quite well in Orlando. This extended family-size

mansion would

cost millions more if it were located in Palm Beach or Jupiter, but, just a

couple miles from Mickey, it is asking just under $3 million. No matter

what, who talks of economy the list of the houses that are going out at the

price, USA has been hit hard in economy. I thank you Firozali A.Mulla DBA

YoElmuh
YoElmuh

What a fine pile of misinformation this is. Mary WAterton, be advised that Social Security has a $2.6 trillion surplus. It's not running a deficit. Look into it.

Jason, you couldn't be more Petty. Social Security is paid for through FICA taxes, and is by definition a part of one's own retirement. What's wrong with you?

Befred and Comment--  yes, people are living longer...they also pay in longer and more as wages rise. Because Ss funds are held by US Government bonds, they pay interest which also helps fund the program. Social Security is not an entitlement program because it is self funded...there seems to be a little confusion when you mention welfare. They're not connected.

Social SEcurity has never contributed one dime to the deficit. Ignorance is bliss.

bcfred
bcfred

This day has been a looming mathematical certainty for as long as I can remember, yet anytime someone proposed changes to fix the system they were shouted down by those telling the ever-gullible voter that "I will save your Social Security benefits from those who want to take them away!!"  No proposal to make it solvent, just hysterical demagogery.  Never mind that life expectancy has increased by nearly 20 years or that people are healthier longer in life.  Increasing the age when benefits kick in is common sense, yet you'd think those suggesting such a change want to see retirees massacred in the streets.

On, and benefits were not plentiful in 1940.  They were first introduced in a meaningful way during World War II as a way of providing additional compensation during a period of wage freezes.

Commentonitall
Commentonitall

Living longer is one of the main reasons SS is failing.  When it was enacted life expectancy was much lower than it is today.  The welfare system and it's ridiculously lax rules on EBT cards is the other main contributor because those people don't pay into the system.  I have and will continue to pay into SS, but by the time I retire it won't exist and I'll never get a return.  I have to laugh at the article because it says one way to get more of a return is to live longer, but that will only hasten it's demise and guarantee even fewer people will ever see any of their money back.  It's just a complete failure because of a lack of accountability and PC politics.

Jason Petty
Jason Petty

Social Security is a horrible program and a plan should be implimented to end it.  People should be in charge of their own retirements.

MaryWaterton
MaryWaterton

Social Security is currently running a deficit,  just like everything associated with the Federal Government, and now there is tsunami of a baby boomers getting ready to retire. Generations X, Y, Z will have the money screwed out of with no hop of collecting a penny themselves. Furthermore, it won't do them any good to save money because clearly the Federal Reserve will eventually be forced to monetize the national debt thus wiping out their savings with inflation. A blind monkey with attention deficit disorder could see this coming. The result of decade after decade of federal mismanagement.

androck
androck

@YoElmuh  …that surplus you refer to is not an operating surplus, but some 'notes' representing what the treasury OWES Social Security. What backs up those 'notes' you may ask?….Well, those 51% of taxpayers who actually PAY federal-income taxes…..Really, the Social Security Surplus is part of the $17.3 TRILLION of out national DEBT…..Look it up on Socail Security Website….Social Security in not running an operational surplus….


ToddAldrich
ToddAldrich

@YoElmuh Wow.   You need to stop dealing in fantasy and strawmen.   The fact of the matter is that as baby boomers age, that surplus is disappearing and more will be drawn out than is being contributed.  Not to mention that that "surplus" is merely made up of IOU's.

bcfred
bcfred

When it was enacted the average American didn't live to collect it.  The program was designed to prevent elderly who lived beyond the national average from becoming destitute, not to be the primary source of retirement income for 20 years.