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.
“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.
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That article looks mighty familiar:
http://ibankcoin.com/kcscott/2012/08/06/your-social-security-update/
Greatminds think alike
That’s a fundamental misunderstanding of the value and nature of Social Security. It is not an investment account or a replacement for one.
There’s a substantial insurance value that is left entirely out of a valuation based only on payouts to a given retiree.
Fortunately, the article includes comments from someone at AARP who understands the difference between Social Security and a retirement account:
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.”
kcscott went beyond the erroneous treatment of Social Security as an investment account by categorizing it as a Ponzi scheme. Among other important differences, a Ponzi scheme is destined to fail due to the impossibility of maintaining exponential growth of new investors. Social Security solvency does not depend on exponential growth or even any growth of new contributors.
You are correct. It’s dependent on the already overburdened federal purse. It’s worse than a Ponzi scheme, it’s a California Pension System.
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