Social Security Not the Deal It Once Was for Workers

social-security
By STEPHEN OHLEMACHER

EDITOR'S NOTE: Few issues touch as many people in the United States as does Social Security. In a four-part series continuing through August, The Associated Press examines the changing dynamics of the government retirement program and what it means for workers and present and future beneficiaries. This first story examines whether Social Security is still a good deal, and for whom.


WASHINGTON (AP) - 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.

social-security"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.

How can you get a better return on your Social Security taxes?

Live longer. Benefit estimates are based on life expectancy. For those turning 65 this year, Social Security expects women to live 20 more years and men to live 17.8 more.

But returns alone don't fully explain the value of Social Security, which has features that aren't available in typical private-sector retirement plans, said David Certner, legislative policy director for AARP.

Spouses can get benefits even if they never earned wages. Children can get benefits if they have a working parent who dies. People who are too disabled to work can get benefits for life.

Because of spousal benefits, most married couples with only one wage earner will continue to get more in benefits than they pay in taxes for the foreseeable future.

"You are buying this lifetime inflation-protected benefit that you can never run out of and that will always be there for you," Certner said. "It protects your spouse, protects your family and protects you from disability."

Certner noted that private pensions, retirement savings and home values took a big hit when the economy collapsed, putting a dent in the retirement plans of many Americans.

"When you have that combination of factors, Social Security becomes more and more important," Certner said. Social Security is financed by a 12.4 percent tax on wages. Workers pay half and their employers pay the other half. Self-employed workers pay the full 12.4 percent.

The tax is applied to the first $110,100 of a worker's wages, a level that increases each year with inflation. For 2011 and 2012, the tax rate for employees was reduced to 4.2 percent, but is scheduled to return to 6.2 percent in January.

The payroll tax rate was only 2 percent in 1937, the first year Social Security taxes were levied. It did not surpass 6 percent until 1962.

Even with low tax rates, Social Security could afford to pay benefits in the early years because there were more workers paying the tax for each person receiving benefits than there are today. In 1960, there were 4.9 workers paying Social Security taxes for each person getting benefits. Today, there are about 2.8 workers for each beneficiary, a ratio that will drop to 1.9 workers by 2035, according to projections by the Congressional Budget Office.

About 56 million people now collect Social Security benefits, and that number is projected to grow to 91 million in 2035. Monthly benefits average $1,235 for retired workers and $1,111 for disabled workers. Social Security provides most older Americans a majority of their income. About one-quarter of married couples and just under half of single retirees rely on Social Security for 90 percent or more of their income, according to the Social Security Administration.

"Social Security is what's carrying me," said Neta Homier, a 79-year-old retired hospital worker from Toledo, Ohio. "There's no way I would have made it without it. The kids, they're on their own, now, and I'm not going to be a burden for them. That's what it would have been if I hadn't had Social Security."

Homier said she started receiving Social Security when she was 63 and now gets about $800 a month, after her Medicare premiums are deducted. She said her father died at 51, so he never received Social Security, and her mother died at 71 and collected benefits for only a few years.

"It's definitely worth it," she said.

At 52, Anthony Riley of Columbus, Ohio, has a different perspective. Riley said he has a private retirement account because he worries that Social Security won't provide adequate benefits throughout his retirement.

"I use to think that it was worth paying for your Social Security, but now I don't think so," Riley said. At 22, Mackenzie Millan of Los Angeles has even greater doubts about whether Social Security will be a good deal for her.

"The money that I put aside now, it's not like that money is going to be waiting for me. That money is going toward someone else," the recent college graduate said. "If I wanted Social Security 50 years from now, when I wanted to retire, I would have to hope that someone else is still working and putting money aside in their paychecks to pay for my Social Security at that point."

How Earnings Affect Social Security Checks

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Associated Press writer Andres Gonzalez contributed to this report.

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RetiredWorking

"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".
This is bull. Over the course of 50 years, I have paid about $77,000 in Social Security taxes, and my wife paid much less. I Started collecting SS 3 years ago. In 2 more years, I will have recovered ALL that I have paid into the system. I expect to be dead in 12 years, but I will have gotten my $$ back with interest.Before you start hating me, my father and two brothers died before collecting a dime from Social Security.

September 08 2012 at 8:51 PM Report abuse rate up rate down Reply
1 reply to RetiredWorking's comment
RetiredWorking

According to this article, if both spouses collect @ age 62, their monthly benefits would be $1078/month.

I paid $77,000 into Social Security. I started collecting @ 62, and my monthly benefit is over $1500/month.

This article is grossly misleading. You WILL pay MUCH less into Social Security, about 78% less than what the author stated.

September 08 2012 at 9:07 PM Report abuse rate up rate down Reply
gmydogbud

Neither Party cares about the "Middle Class", they both passed NAFTA and looked the other way while American Production Jobs left this country. Wonder where these highly educated, ivy league types thought their tax base would come from, once all the jobs were gone. Both parties are bought and paid for by special intrests. Now that we know how the game is played, what is needed is a "Middle Class Party", that the average Joe & Jane can payoff, to work for them. Neither Presidents nore Congresses, have worked for the Middle Class. They have protected themselves, have made money hand over hand by engageing in Insider Trading and to hell with the American Middle Class. It is high time the Middle Class Had It's Turn At Insider Trading. They Are Forcing "OBAMA CARE", On The Middle Class - Although President Obama, Nancy Pelosi, Harry Reid & The Rest Of The Boys & Girls In D.C., Don't Want Any Part Of It For Themselves & Their Famlies! The President has taken Millions From Medicare To Help Pay For His Sub-Standard Health Care System!! American Senior Citizens Were Told For TWO YEARS That The Cost OF Living Had Not Gone Up - Therefore - NO COLA - While Both Years The Congress Took THIRTY-SEVEN Thousand Dollars In Cost Of Living Increases. Lie, Lie, Lie - Sad But True - The American Middle Class Does Not Have A Party To Work For Them!!

August 12 2012 at 6:10 PM Report abuse rate up rate down Reply
Robert Branscomb

Why don't we ever hear about a plan to pay back the fund by those who "borrowed" it???

August 11 2012 at 8:36 PM Report abuse +1 rate up rate down Reply
gmydogbud

There should be plenty of money for American Citizens who paid into the Social Security Fund all their working life because our government has Hundreds Of Billions for ILLEGAL Aliens, Their Anchor Babies and for Countries & People Who Hate Us & Want Us Dead! Why should American Citizens, who followed the laws of this land, now be called GREEDY by people such as Alan Simpson and PUNISHED Due To The Fact That Presidents & Congresses Chose To SQUANDER OUR MONEY? It Is Time For Them To Man & Woman UP!!

August 08 2012 at 3:00 PM Report abuse +1 rate up rate down Reply
MONTOOTH

Your retirement is YOUR responsibility, it always has been. Social Security was intended to support widows, orphans, the disabled and the elderly at or in poverty. As a tax...a TAX for a Pay-as-you-go system, the notion that we should "receive" what we have put-in (or some variation of that kind of thinking), seems totally unreasonable to me. Those who have excellent pensions and/or have wealth that renders whatever they get from SSA superfluous, probably should not receive SSA payouts. Again, SSA is not a retirement fund. Those who are working now, should not expect SSA to be a very large part of their retirement financial plan, even though the SSA Administration has reiterated the fund is solvent until 2036-7. Folks need to save, save, save. Also, if working longer will net more savings, they should do so. Having said that, a few tweaks to the system is all that is needed, e.g., raising the retirement age (since many are living longer); means-testing (scaling back benefits for those of extraordinary financial means); and locking the box from Congress's greedy hands.

August 07 2012 at 10:39 PM Report abuse rate up rate down Reply
1 reply to MONTOOTH's comment
RetiredWorking

Totally agree with you.

September 08 2012 at 7:56 PM Report abuse rate up rate down Reply
Delaware Jack

Noted expert Peter Schiff says the U.S. economy is on the verge of an economic collapse worse than 2008 and is warning Americans to take immediate steps to protect themselves…….. Schiff warns that while any moves the Fed makes this year could "artificially" bolster the economy - and bring investors false hope that things are turning around - the truth is that the government will only be delaying the "Day of Reckoning." ……. "If the Fed ultimately comes through with QE3... it won't strengthen the economy, but it will weaken the dollar," Schiff said, noting that Bernanke's policies will eventually lead to a Greek style debilitating sovereign debt crisis where the dollar plunges and consumer prices and interest rates spike…….. "We have a much bigger collapse coming, not just the markets, but of the economy. It's like what you're seeing in Europe right now only worse," Schiff said. …….An Emmy Award-winning documentary filmmaker followed a team of scientists, economists, and energy analysts to explore an incomprehensible financial crisis that's facing average Americans. …… Schiff goes on to say that things will get truly ugly when we hit our fiscal cliff and have to slash government spending across the board……. "People on entitlements like Social Security and Medicare... they're not going to get the benefits they've been promised. Government workers are going to have to take pay cuts... banks are going to fail... people are going to lose money, not just investors but depositors. The housing market is going to fall again.". ……And Schiff isn't the only expert warning about the U.S. economy's dire predicament. …… A group of prominent scientists, economists and geopolitical experts have uncovered an emerging pattern... one they believe could soon hasten an American economic catastrophe - and a radical hit to the wealth and financial security of millions Americans. ….. Germany's military held a secret investigation into this emerging pattern and concluded it could lead to "political instability and extremism." ……. A large part of this has to do with the velocity of total credit market debt. It's part of a pattern of accelerating debt - and few have been able to track the speed of it, which is growing at a rate even faster than just a few months ago. ….. Chris Martenson, a highly acclaimed scientist and an expert on exponential growth, says the dangerous pattern of accelerating debt can go unnoticed at first. But what's happening underneath the radar is the speed of the doubling, which is now accelerating even faster to an unsustainable level. ….."That's when chaos breaks out," Martenson says……. As of today, the total credit market debt is 357% larger than GDP. That represents an astounding $691,000 for a family of four in America……. Yet the doubling period for this gets shorter at an exponential rate that increases every day. "It's a very dangerous exponential growth curve," says Martenson, "one that's setting us up for a situation worse than we've seen in Greece and across Europe."…… "Every American needs to know what this means and what steps to take with your finances, investments and day-to-day life to prepare for it, "Martenson added.

August 07 2012 at 1:06 PM Report abuse +1 rate up rate down Reply
Joel Weinberger

I WORK IN AEROSPACE AND DEFENSE WITH HIGHEST TOPSECRET CLEARANCE CALL SAHRS. allow me to be knowledgeable about Secretprograms thatlose Trillion Dollars. Out of control. Present nonsecretPrograms totally huge cost issues.

USA HAS TEN TIMES THE DEFENSE CAPABILTY THN THE REST OF WORLD COBINED.

WHY IS DEFENSE A SACRED COW. DEFENSE HAS TRILLIONSOF DOLLARS BE ING LOST.

WE THE PEOPLE NEED TO BE TREATED FAIR.

ATTACKS ON SOCIAL SECURITY IS THE COWARDS WAY OUT.


CONGRESS IS CLUELESS ON HOW TO SPEND WE THE PEOPLES MONEY.

THERE ARE SOLUTIONS. GO AFTER DEFENSE SPENDING. MAKE SOCIAL SECURITY TAXES KEEP ON GOING. DO NOT STOP. BUILD UP TRUST FUND. STOP THESE TAXES ON BUSINESSES AS BEFORE OR LESS.



MEANS TEST ANYONE WHO RECEIVES SOCIAL SECURITY AND MEDICARE. MILLIKNAIRES LAUGH WHEN THEY RECEIVE THEIR SKCIAL SECURITY AND MEDICARE. WHY DO MILLIONAIRES GET INCREASE IN VALUE AND OUR PRECIOUS MONEY.

KOCH BROTHERS. AND THEIR CRONE'S. WANT EE THE PEOPLE TO JUST BE SERFS AND LOSE OUR DIGNITY.

WHY DOES THIS HAPPEN.

WEALTHY ARE FEELING DISCRIMINATED BY WHOM.

WHAT A JOKE. WE THE PEOPLE WANT TO LIVE NOT DIE.

August 07 2012 at 12:30 PM Report abuse +1 rate up rate down Reply
Joel Weinberger

I know that when I paid Linton Social Security three bushels of apples were worth a dollar. Today a dollar buys one apple. Other expenses were much lower. I receive at leastone hundredth of my dollar value that was put in. You and anyone who believes that I received more than I put in is losing it. WE THE PEOPLE HAVE SEEN THE SOCIAL SECURITY TRUST FUND STOLEN. BITBYBIT. TRUST FUND I NOT THE ISSUE. LIKE A PENSION WHERE WAS SOCIAL SECURITYTRUSTFUND INVESTED. SHOULD HAVE MAINTAIN AT LEAST NINEPERCENT GROWTH A YEAR.

Congress needs fixing to do right BY WE THE PEOPLE. Not continue propaganda that lies.

August 07 2012 at 12:06 PM Report abuse rate up rate down Reply
ilm9p

The truth about why Social Security is going broke is the same answer as everything else that’s wrong with this Country. All the dirty animals on welfare looking for a hand-out is what’s draining Social Security. This filth gets $1000.00 a month “’cause they gots the high blood”, “’cause they gots the sugar and they feets be hurting all the time”, “or they be tired all the time and they back be hurting”. This is the same scum that parks their new Escalades in the handicapped spots in front of the grocery store, then waddles their fat putrid selves into the store with Food Stamps to pay for everything. That’s the dirty vermin that’s living it up on the tax dollars we pay. Enough is enough. Let this scum take a stake in the recovery and cut their benefits. Especially Food Stamps, this fat garbage could stand to lose some weight anyway.

August 07 2012 at 10:38 AM Report abuse +2 rate up rate down Reply
gmydogbud

President L.B.J. & HIS Congress, told the American People That There Was So Much Money In The Social Security Fund, That It Could NEVER BE DEPLETED. He & They & Every President & Congress Since That Time Have Taken OUR Social Security Fund Money & SQUANDERED IT - While Protecting Their Retirement Pensions & Engaging In Insider Trading.!! Now It Is Time To Claw Back Our Retirement From Them & Their Estates! They Have Hundreds Of BILLIONS OF Our Dollars To Give To People & Countries, Who Hate Us & Want Us DEAD. They Borrow Billions From China & Then Gift China Millions! Sen. Alan Simpson, Calls American Senior Citizens Greedy. Who Should Know About Greed - Better Than He & His Fellow Senators?The American People Followed The Laws Of The Land & Had Their Hard Earned Money Taken For Social Security Fund & Medicare - It Is Not Their Fault That The Likes Of Simpson Chose To Squander Their Money! President Obama Has Taken Trillions From Medicare, To Help Fund His "Obama Care", Which Neither He Or HIS Congress Want Any Part Of For Themselves & Their Famlies. They Know It IS SUB-STANDARD Health Care - Yet They Are Pushing It On Their - EMPLOYERS - Their Fellow Americans!!

August 06 2012 at 10:24 PM Report abuse rate up rate down Reply