WORKERS TOO DEPENDENT ON SOCIAL SECURITY
The Social Security benefits wage earners will receive compared to the taxes
they pay are falling, due to a combination of payroll tax hikes and changes
in the formula used to calculate benefits.
The Tax Foundation reports that higher wage earners who retired recently
will receive a negative rate of return if the payroll taxes they paid were
considered as an investment. In fact, for all those still working, the Social
Security benefits they are likely to receive will be less than the retirement
income they would be getting if their taxes had been invested in stocks
or bonds.
A new analysis from the Cato Institute points out that because lower-income
workers depend more heavily on Social Security benefits for their retirement
income, they will be harmed the most, proportionately, by the diminishing
returns on Social Security. That's because the higher a worker's wages,
the more he can put in private investments, pensions and 401(k)s.
- Social Security benefits are a greater portion of retirement income
for the poor -- currently about 81 percent for the poorest 20 percent of
the elderly.
- Assuming benefits aren't cut, total annual retirement income for the
working poor -- mostly from Social Security and a little from other sources
-- on average will equal only 69 percent of their preretirement income.
- But for the wealthiest 20 percent of retirees today, Social Security
benefits are only 20 percent of their retirement income.
- For today's high-wage workers, when they retire, their total retirement
income from all sources will equal 138 percent of their income before retirement.
Poorer workers depend more on Social Security because they have proportionately
less to invest in things that would yield them a higher income. They are
also disadvantaged since the life expectancy of lower income workers is
less than higher income workers, and more live in single households. The
Cato study estimates that more than half of poor single-earner couples receive
a negative return on Social Security, and single wage-earners fare even
worse.
Source: Michael Tanner, "Privatizing Social Security: A Big Boost for
the Poor," SSP No. 4, July 26, 1996, Cato Institute, 1000 Massachusetts
Avenue, NW, Washington, DC 20001, (202) 842-0200.
For full text go to http://www.cato.org/pubs/ssps/ssp4es.html
BLACK MALES LOSE IN SOCIAL SECURITY LOTTERY
Social Security is a lottery in which those who live the longest win, while
those who work and pay into the system but die before retirement lose, says
former Governor Pete du Pont (R-Delaware).
Statistically speaking, the biggest losers are black males, whose average
life expectancy from birth is only 65 years, while white females are the
biggest winners due to their longer average lifespans. Thus black males
in effect subsidize the retirement of white females. Current statistics
show:
- The death rate of young black males is high.
- In addition, about 40 percent will die between the ages of 55 and
75.
- Out of 1,000 black males, only 349 will make it to their 75th birthday.
- However, more than twice that number of white females (712) will make
it to their 75th birthday.
In addition, white women tend to have higher incomes and greater assets
than black males, irrespective of their Social Security benefits. They are
also less likely to work than males, since they are more likely to be married
to higher-income white males who make enough so their wives aren't forced
to work.
Black males who die early get little in return for their Social Security
contributions.
- Their widows get an average monthly benefit of $630 for the rest of
their lives.
- But that is less than what a minimum wage worker would get back if
the amount paid in Social Security taxes had been put in an investment account.
Several studies have shown that many median-income workers starting today
under a privatized retirement system would retire millionaires. Unlike Social
Security benefits, the money in a vested retirement account would be theirs,
and if they die before retirement, they could leave it to their widows or
children.
Source: Pete du Pont (Policy Chairman, National Center for Policy Analysis),
"Social Security is a Gamble," Dallas Morning News, September
29, 1996.