An Associated Press analysis of Social Security has found that, on balance, the program might not be the best retirement option. Workers currently paying into Social Security will pay more into it than they will likely receive in Social Security benefits.
Cost of Social Security benefits greater than rewards
According to Time magazine, if one were to run a cost-benefit analysis on Social Security, they might find that the returns are less than the funds one is likely to put in. In other words, one isn’t likely to get much of a return on the investment.
The Associated Press, using data from the Urban Institute, recently did an analysis of Social Security, concluding that a couple that retired in 2011 after earning average income, presumably at age 70, could expect to collect $556,000 in Social Security benefits, provided the husband lives to 82 years of age and the wife to 85. They would have paid $598,000, leaving a $42,000 gap.
That means, using back-of-the-envelope calculations, that 7.5 percent of Social Security payments are going to someone other than the person paying it.
Though it sounds shocking, it was inevitable. With an increasing population coupled with longer life expectancy, there are more people to pay who get paid for longer. The agency is also not helped by Congress treating its Trust Fund as a source of personal loans for various things.
When Ida May Miller collected the first Social Security retiree benefits, there were 42 people paying in per retiree. By 1960, about 20 years after Miller began collecting benefits, there were 4.9 and today, there are 2.8 workers paying payroll taxes and by 2035, it will have dropped to 1.9 workers per retiree collecting Social Security benefits. Still, people were collecting more than they paid into Social Security by 1985.
During that time, according to Daily Finance, Social Security payroll taxes have increased. Initially, workers paid 2 percent of income. That has increased over the years to 6.2 percent per working person, which is matched by their employer. A payroll tax holiday was granted for 2011 and 2012, reducing it to 4.2 percent for the time being, though it lapses in January of 2013.
Not all recipients are those who paid
Lower-income recipients will still get more than they paid in. Higher-income recipients have been-upside down with Social Security since the 1990s. However, the middle class now has negative equity in Social Security.
Also, not everyone receiving Social Security income is a retiree; according to the Huffington Post, retirees make up 64.5 percent of recipients. Another 8 percent are their children, 5 percent are their spouses, 9 percent are the survivors of retired workers and 15 percent of recipients of Social Security benefits are on disability.
However, at the present pace, the Social Security Trust Fund, where all the surplus funds go, is set to run dry by 2033, at which point the agency will only be able to pay 75 percent of its outlays, according to Daily Finance.