Social Security

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.

3 thoughts on “Social Security”

  1. Thomas R. says:

    I am 77 years old.I started paying Social security taxes when I was 18. I started collecting Social security when I was 62 because my wife became semi-invalid, and unable to continue working as a nurse. I kept on working, and paying social security taxes, because I did not want to quit. I had planned to retire when I was 75, but in 2008 my 401k was wiped out by the big boys manipulations. I now work to live, because my social security is less than a thousand dollars a month! Of course the rich Republicans do not like social security, because it is money they cannot lay their hands on which is why they want to privatize it!

  2. Wine Guy says:

    Neither the Dems nor the Reps are being honest here… and neither are the US voters (or at least the people, leaving aside the question of whether or not they actually vote).

    OASDI says that, as of 2010, there are 2.9 workers supporting 1 person receiving SocSec benefits. It is expected to drop to 2 by 2030. Considering my benefits (such as they will be) are due to start in 2037, perhaps people will understand why I’m investing now because I don’t see Soc Sec being solvent past 2030. I also don’t see 67 sticking around as a retirement age.

    **Note:gross generalizations for the next several lines ** The baby boomers are kicking us in the teeth right now. They needed to have more kids and they needed to live through a depression the hard way. They might be a bunch of starry eye idealists, but their lack of fiscal sense is kicking future generations in the teeth.

    /gross generalization rant

    Unless we actually wish to become a welfare/socialist state like France, Greece, etc. there’s going to have to be a significant change in how the US voters view Soc Sec. In France, there were riots when they attempted to change the retirement age from 60 to 61. In Greece, early retirement is at 58 and they get 80% of their base salary. Germany, fiscally conservative, is weighing increasing their retirement age to 69.

    Fundamentally, for most people retirement is a myth. No one actually stops working, they just do something else and either don’t get paid or don’t get paid as much for it. Why is that? For those who actually stop doing everything and just rest on their (mostly imagined in most cases) laurels… why is that?

    When did the US citizenry stop being self-reliant individuals responsible for themselves and start becoming a collective people with their hands out?

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