Monday, February 22, 2016

Seniors Haven't Paid Full Medicare, Social Security Share

Medicare and Social Security: What you paid compared with what you get

By Louis Jacobson on Friday, February 1st, 2013

The Urban Institute, a non-partisan research institute in Washington, produces statistics on this topic annually. Institute researchers figured out what people turning 65 in various years have already "paid in" to the system and what can expect to "take out" after they reach age 65. (See our charts below)

Because marital status and family income can significantly affect both the amount paid in and the amount paid out, the institute offers its calculation for various types of family units. To make the final amounts comparable to what might have been done with the tax money had it been invested privately, the institute adjusted all dollar figures at 2 percentage points above the rate of inflation. (The authors note that different assumptions for long-term returns on investment would change the results.)

According to the institute’s data, a two-earner couple receiving an average wage — $44,600 per spouse in 2012 dollars — and turning 65 in 2010 would have paid $722,000 into Social Security and Medicare and can be expected to take out $966,000 in benefits. So, this couple will be paid about one-third more in benefits than they paid in taxes.

If a similar couple had retired in 1980, they would have gotten back almost three times what they put in. And if they had retired in 1960, they would have gotten back more than eight times what they paid in. The bigger discrepancies common decades ago can be traced in part to the fact that some of these individuals’ working lives came before Social Security taxes were collected beginning in 1937.

Some types of families did much better than average. A couple with only one spouse working (and receiving the same average wage) would have paid in $361,000 if they turned 65 in 2010, but can expect to get back $854,000 — more than double what they paid in. In 1980, this same 65-year-old couple would have received five times more than what they paid in, while in 1960, such a couple would have ended up with 14 times what they put in.

Such findings suggest that, even allowing for inflation and investment gains, many seniors will receive much more in benefits than what they paid in.


The couple will have paid $122,000 in Medicare taxes but will receive $387,000 in benefits — more than three times what they paid in.

In addition, Timothy Smeeding, a public policy professor at the University of Wisconsin, notes that when judging Social Security, it’s not just a question of dollars paid out, but also the intangible benefits bestowed. The program’s future benefit checks provide a sense of financial security for one’s retirement years, and beneficiaries get coverage for disability and survivors’ insurance throughout their entire working careers. Such insurance would otherwise have to be purchased commercially.


"We’re not really entitled to get our money back since we didn’t save it but rather spent it on our parents," said C. Eugene Steuerle, who helped assemble the Urban Institute’s calculations.


tags: medicare funding, social security funding

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