Right Change: Social Security Reaping What it Has Sowed for Years

The nation knew this day was coming. For the first time ever, a couple retiring today will officially collect less in Social Security benefits than they paid in over the duration of their lives. The situation will only get worse as the bulk of baby boomers look to leave the workforce over the next few years. Much of the problem is due to payroll taxes being much lower half a century ago than they are today. Part of the problem is amismanagement of collected taxes.

According to a report by the Associated Press, you really wanted to retire fifty years ago.

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.

Today’s retirees face a grimmer picture. With fewer and fewer people in the workforce, due to the boomers retiring and the increase in unemployment, there are less people to pay the payroll taxes necessary to fund Social Security. A 2011 study by the Urban Institute, a Washington D.C. think tank, paints out a scary picture.

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. Future generations are going to do worse because either they are going to get fewer benefits or they are going to pay higher taxes.

While most people don’t understand how Social Security benefits are calculated, they do understand the only solution is to work and/or live longer. Social Security payments continue until you die, so taking good care of oneself will bring a double-dose of benefits. Don’t take Social Security benefits before age 70, if you are in good health and can afford to wait. Every year you delay, your monthly benefit rises by 8%, giving you a good shot at an even bigger lifetime payout.

For those just starting out in the workforce, get used to just about every payroll tax dollar you pay to be spent on someone else with very little hope someone will be able to do the same for you. Sounds encouraging, doesn’t it? Seems like one more example of how big government fails once again.

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