"People retiring today are part of the first generation of workers who have paid more in Social Security taxes during their careers than they will receive in benefits after they retire. It's a historic shift that will only get worse for future retirees, according to an analysis by The Associated Press.
Previous generations got a much better bargain, mainly because payroll taxes were very low when Social Security was enacted in the 1930s and remained so for decades.
"For the early generations, it was an incredibly good deal," said Andrew Biggs, a former deputy Social Security commissioner who is now a scholar at the American Enterprise Institute. "The government gave you free money and getting free money is popular."
If you retired in 1960, you could expect to get back seven times more in benefits than you paid in Social Security taxes, and more if you were a low-income worker, as long you made it to age 78 for men and 81 for women.
As recently as 1985, workers at every income level could retire and expect to get more in benefits than they paid in Social Security taxes, though they didn't do quite as well as their parents and grandparents.
Not anymore.
A married couple retiring last year after both spouses earned average lifetime wages paid about $598,000 in Social Security taxes during their careers. They can expect to collect about $556,000 in benefits, if the man lives to 82 and the woman lives to 85, according to a 2011 study by the Urban Institute, a Washington think tank.
Social Security benefits are progressive, so most low-income workers retiring today still will get slightly more in benefits than they paid in taxes. Most high-income workers started getting less in benefits than they paid in taxes in the 1990s, according to data from the Social Security Administration.
The shift among middle-income workers is happening just as millions of baby boomers are reaching retirement, leaving relatively fewer workers behind to pay into the system. It's coming at a critical time for Social Security, the federal government's largest program.
The trustees who oversee Social Security say its funds, which have been built up over the past 30 years with surplus payroll taxes, will run dry in 2033 unless Congress acts. At that point, payroll taxes would provide enough revenue each year to pay about 75 percent of benefits.
To cover the shortfall, future retirees probably will have to pay higher taxes while they are working, accept lower benefits after they retire, or some combination of both.
"Future generations are going to do worse because either they are going to get fewer benefits or they are going to pay higher taxes," said Eugene Steuerle, a former Treasury official who has studied the issue as a fellow at the Urban Institute." http://money.msn.com/retirement-plan/news.aspx?feed=AP&date=20120805&id=15415077
I'm no expert in personal finance, but it seems that everything social security is designed to do - give a basic retirement ($1200 a month, pretty low if you ask me), give benefits to the disabled, etc - can already be done in the private sector at a much higher rate of return and far more efficiently. I wish I had the choice of opting out of social security as I'll probably get half or less of what I put in. That just doesn't sound like the greatest investment I'll ever make.
You'd better be careful Creighton. More crazy, apostate talk of privatization like that and the liberal dems will excommunicate you.
ReplyDeleteThe writing on the SS wall has been clear for some time now. The population demographics just don't justify the continuation of the SS program as it is now. Way too many retiring baby boomers and nowhere near enough current workers to fund the boomers' retirements.
The problem is that self-interested politicians on both sides of the aisle know that the SS issue is toxic because the SS crowd is, by far, the one with the highest voter turnout. For that reason, it's often political suicide to propose any meaningful (read: one that does not lead to inevitable bankruptcy) SS reforms. The other side will simply paint serious proposals of fiscally-responsible reforms (such as Paul Ryan's budget) as something akin to throwing wheelchair-bound retirees off the cliff or "social engineering." Whether right or wrong, accurate or misleading, those ads are effective because the older folk are very gullible - as evidenced by some of the ridiculous email chains I've been forwarded - and unlikely to know how to (if they even want to) research the validity of the claims themselves. The majority just take these attacks at face value at punish the evildoers accordingly on election day.
SS is a tough problem to solve, mainly because there aren't enough elected officials in Washington who are willing to talk to us like we're intelligent adults, and are willing to take the necessary political risks. We should vote for leaders who are willing to propose and fight for changes that will actually solve, or at least alleviate the serious problems we face instead of merely kicking the can down the road for someone else to deal with.
Good post.
A good follow up to my thoughts about Paul Ryan and his transformative vision.
Deletehttp://www.politico.com/news/stories/0812/79493.html
Here's my main problem with social security. I don't have a problem with safety nets. I am in favor of medicaid, food stamps, and medicare. I think they have an important place in our society. They certainly have been important to me personally and I'm happy to pay higher taxes in the future to help fund those things. Social security is a bad deal any way you look at it.
ReplyDeleteWhat is the maximum taxable earnings amount and the Social Security tax rate for 2012?
For 2012, the maximum taxable earnings amount for Social Security (OASDI) taxes is $110,100. There is no limitation on taxable earnings for Medicare's Hospital Insurance (HI) taxes.
Employer/Employer
The Social Security tax rate for employees is 4.2 percent through the end of the year
The Social Security tax rate for employers is 6.2 percent
The Medicare tax rate is 1.45 percent for employees and employers
Self-Employment
The Social Security tax rate for self-employed is 10.4 percent through the end of the year. The Medicare tax rate is 2.9 percent for self-employed.
So take Chris for example, let's assume that he makes about $100,000 a year for 30 years (just an average) and because he's self-employed, he pays 10.4% a year. That's about $10,000. He's paying about $300,000 over his career in social security. What will he get out of it? About $1200 a month for 20 years maybe? That's $288,000, or less than he put in. What if that money would have gone into a basic IRA? I used a basic IRA calculator I found on the internet and entered those numbers. Do you know what number came out? 1.5 million dollars. I get that social security is on a sliding scale, but according to the article, everyone will be taking out less than they put in. And with social security going to 75% funding by the payroll tax in 2033 (according to the social security website), who knows if social security will even be around when we retire.
Although I am not making any money yet, I have always expected social security to be another government program that I would pay into and never see any of that money come back to benefit me. My retirement will be funded by my own investing, and if I could opt out of Social Security I would do it today.
ReplyDeleteYou are describing a common misconception about SS. There never has been much correlation between paying in and paying out. The SS trust fund was regularly robbed. From the beginning workers who are currently paying into the system are simply paying current dollars that get passed on as payments to those who are currently receiving benefits from the system. If more gets paid in than is paid out during a given year, the government sucks out to pay for other programs (or to service our debt to China). When more gets paid out than what gets paid in, we will simply borrow at very high interest rates because the credit rating will deteriorate again. I never ever had a hope that we would receive in benefits more than we paid in. That would only happen if I were disabled young and received SS disability benefits. Guess what? In record numbers Americans are qualifying for SS disability benefits. Coincidentally? unemployment is high. What is silly is that we continue to pretend SS is not a straightforward welfare program. It is a welfare program. Why do wealthy Americans receive these welfare benefits? The SS tax is the most regressive federal tax we have.
ReplyDelete