From a press release:
According to a newly released Stony Brook Poll conducted in association with Left Right Research, a Long Island based Marketing Research supplier, more than 81 percent of approximately 7,000 people surveyed believe that they had contributed enough to Social Security to support themselves in retirement, or more than they will receive during their lifetime. ...When asked about how much they believed they had contributed to ... Social Security during their best paid year, more than 2 in 5 individuals surveyed were wrong by 50 percent or more regarding Social Security contributions ...
One of the reasons that many people believe that Social Security is a bad deal is that they believe that they have paid far more in FICA than they actually have. They think that if they had just invested this money for themselves that they would be wealthy. FICA is not high enough for that to be possibility.
The average person draws out of Social Security in benefits everything they paid in FICA taxes in their lifetime within 36 months of beginning to draw. Within 72 months, they have drawn out everything they ever paid in FICA taxes plus everything every single one of their past employers ever paid in matching payroll taxes. In cases where wives or children are also drawing, the breakeven timeframes can be drastically shorter.
ReplyDeleteOnly long term very highly paid employees and the self-employed in general will fall outside the 36 month breakeven timeframe. And, although the self-employed have to pay more in FICA taxes, they in turn get a tax deduction for 1/2 the Social Security taxes paid. When this is considered, it tends to drop the majority of them back within the same 36 month breakeven timeframe window.
Anonymous - I looked at my numbers 36 and 72 months are fairly close. But if I adjust my contributions using the growth in average income (AWI), these values are almost doubled. I think this is a better measure of the value of the contributions. Still, most people get out more than they put in, as they should, since the money is invested and grows faster than the AWI.
ReplyDeleteBack in the 70s when taking RIB claims, I'd hear this same complaint. "I paid zillions in taxes and am getting back bupkis." This was pre-Regan changes so likely not same now but I created a simple chart showing cumulative FICA paid based on a range of years of birth (for people retiring in late 70s) showing their, their employer and cumulative IF they paid max FICA all those years. It was an amazingly low number. Most agreed that there was no way that this cumulative amount would have been invested to bring about a higher return. Most said they'd have spent it on the car, kids, house etc.
ReplyDeleteOne thing that SSA has gotten away from is the old "three-legged stool" concept of emphasizing Social Security as part of a triad of savings/investments, pensions, and RIB. Of course, now that most pensions are a thing of the past, people are focusing on just how much Social Security benefits they can depend on. It was never designed to be a person's only source of retirement income, and instead of trotting out washed up actors to extol the greatness of eServices, SSA should be getting back to basics in its PR efforts.
ReplyDeleteA different view.
ReplyDeleteFirst of all, what "I" paid into SS is not just a total of my FICA contributions, but also the employer's contribution, too. This is money that would otherwise have been available to be paid as wages and a "wage" cost for my employer or as self-employed person.
Second, the distant past payments may appear to have been small in dollar amounts but need to be adjusted for inflation (i.e., use current value figures, not just how many silver dollars were handed over way back when). (Also, the official calculation of 'inflation rates' have been rigged to understate the actual amounts and that there is now "no inflation" --just living costs keep going up in the grocery store, gas pump, taxes....)
Thirdly, the artificial interest rate (set to Secs. of Treasury & Labor ...) have been less than the rates paid for comparable US Government securities, requiring further adjustment in favor of the beneficiary. Even more honest would be some form of 'opportunity cost', rather than restricting SSA's investments to institutional US bonds and more comparable to the portfolio return of major insurance companies.
And fourthly, an offset for the people who do not have the opportunity to get their contribution back in full, starting with people who get a death lump sum smaller than what had been paid in.
So, it is more difficult to say what people paid in and what they get back for RSI.