NCPA - National Center for Policy Analysis

Social Security Not the Deal It Once Was for Workers

August 7, 2012

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.
  • 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 age 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 age 82 and the woman lives to age 85, according to a 2011 study by the Urban Institute.
  • Social Security benefits are progressive, so most low-income workers retiring today will still 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 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.

Source: Stephen Ohlemacher, "Social Security Not Deal It Once Was for Workers," Associated Press, August 6, 2012.


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