There are more than a few myths about Social Security, and I’ve seen very few analyses of the program based on facts relating to individuals, as opposed to the program as a whole. Since I’m actually past the age where I could take benefits, I decided to look into some of the assertions made about the program.
One is the claim that Social Security will go broke soon. That’s a total myth. In 2012, the program did pay out more in benefits than it collected in FICA taxes, but given the present surplus in the trust fund, even with no changes, the program will be able to pay current and projected benefits until approximately 2030. That means that some changes need to be made, but that a crisis is nowhere near imminent.
Second is the claim that beneficiaries get more than they paid in through taxes. Some beneficiaries do – those that live a long time. But Social Security, despite assertions to the contrary, is in fact based on fairly sound actuarial principles. For example, the life expectancy at birth of men in my age group was/is roughly 67 years. That means that about half the men have died before they can collect full benefits. If they have surviving spouses, the spouse can collect a survivor’s benefit, or take any benefit she has in her own name, but not both. In effect, that results in a significant amount of benefits not being paid, roughly 25% less for survivors than for the man, plus the effective forfeiture of the spouse’s own benefits. If the woman is the major breadwinner, the math is essentially still the same.
Then there’s the issue of what is meant by “taxes paid,” because a dollar in taxes 45 years ago was worth, according to the BLS inflation calculator, roughly seven times what a dollar is worth today. As an exercise, I went through my own Social Security records and recalculated what I paid in taxes in terms of current dollars. That means that the current value of my FICA taxes is 71% higher than the dollar amount recorded by the Social Security administration. It’s not 700% obviously, because the closer to the present time that the taxes were collected the less the total inflation of the value. While figures will vary for each beneficiary, the value of FICA taxes in current dollars (which are the ones in which benefits are paid) is going to be much higher than the official statement of taxes paid. Even so, more than half of Social Security beneficiaries who retire at the age for full benefits will likely receive more than they paid in, but that only amounts to 25-30% of all those who have contributed, because 70-75% (roughly) will die either before receiving benefits or before the amount they collect exceeds the amount they paid into Social Security.
The idea behind Social Security was not absolute financial fairness, but to insure that those Americans who did live past a physically useful working age would not live in poverty after they stopped working. This is, of course, why some politicians are pushing for means testing of those who receive benefits as a way to reduce the “cost” of benefits. The problem with this is that it’s based on inaccurate assumptions, not to mention totally punitive. One proponent of means testing cites the fact that a significant percentage of the elderly have incomes over $40,000, and should therefore receive either no benefits or reduced benefits. The average Social Security benefit is approximately $15,000 annually. On average, about 40% of an elderly couple’s income comes from Social Security. Roughly 20% of individuals/couples over age 65 could be considered “financially comfortable” [making more than average family income], but about half of those would drop below that level without Social Security benefits.
Means testing, if done accurately, will also have a minimal effect on the current funds balance. Why? Because less than 5% of the population has incomes high enough that they could live comfortably without benefits and without working. Considering that 13% of Americans are over the age of 65, and less than half of one percent of them are wealthy, amounting to less than 300,000 individuals, the “savings” from confiscating their Social Security benefits would only reduce annual Social Security outlays by about one percent. Any real savings would have to come from people who are “financially comfortable,” but far from wealthy, and why should those people get absolutely nothing after having paid into the fund for a lifetime? It’s one thing to tax their payments; it’s another to deny benefits… and it might even be unconstitutional under “equal protection.”
All this means, as usual, is that any adjustment in Social Security is going to have to fall on all beneficiaries… and can’t be foisted off on one small group.