Social Security Now Takes More Than it Gives

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. (MORE: The Key to Retirement Happiness? A Lifetime Income Stream) 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 … Continue reading Social Security Now Takes More Than it Gives