How can you get your money’s worth out of all that you pay into Social Security?
There are things you can do to increase your benefits somewhat, such as defer them. But the big levers are in the structure of our society, not in machinations we can do with advisers who offer help. We can see this in a regular exercise done by actuaries in Social Security’s Office of the Chief Actuary.
The actuaries figure the present value of your tax dollars. They calculate present values by adjusting dollars paid in for the interest rate earned on the Social Security trust fund.
Then they compare that number to the present value of the stream of benefits you are likely to receive if you live a typical lifespan. It’s called the Money’s Worth ratio.
Needless to say, you can do better by living longer--- or worse by dying younger. One thing the actuaries are at pains to point out is that Social Security isn’t like a pension plan. The program skews benefits higher for people with lower incomes. And it skews them lower for people with higher incomes. In pension plans, benefits are proportional to contributions.
A single man with low income retiring in 2014, for instance, will enjoy benefits that are 1.44 times what he paid in. That's nearly three times the 0.53 a single man at the top of the wage base would receive.
In fact, the actuaries suggest the gap is larger. Why? Because they didn't adjust for the taxes on Social Security benefits paid by higher-income retirees.
Are there other differences? You bet. Here are some big ones.
The best time to be born or retire was long ago.
Workers at medium earnings levels born in 1920 and retired at 65 in 1985 did well. A single male receives $1.37 for every $1 committed. The next generation, those born in 1943 and retired in 2008, gets only 74 cents on the dollar. Their children, born in 1964 and retiring in 2029, will do somewhat better, at 94 cents on the dollar.
But that 94-cent figure depends on Social Security paying full benefits after the trust fund is empty. This will happen, the actuaries say, around 2033. If benefits are paid from available employment taxes, their money’s worth will decline to 81 cents.
Married couples with one medium earner do better than individuals or dual-income couples.
A single-earner couple retiring in 2014 will receive $1.48 for every $1 paid in. Comparable two-income couples receive 90 cents on the dollar. Single females will receive 88 cents on the dollar and single males of medium earnings will receive 78 cents.
But single-earner married couples are close to being an endangered species. According to Bureau of Labor Statistics data, only 23.4 percent of all married couples had a single earner in 2007. But 39.3 percent had a single earner in 1967. Another overlooked reality: Today more couples are living together rather than marrying. They avoid marriage in spite of losing a major economic benefit of Social Security.
Women do better on Social Security than men of the same income.
Women earners of medium income retiring in 2014 will receive 88 cents for every $1 paid into Social Security. Men will receive only 78 cents. The difference is the longer life expectancy of women--- they pay in the same amount, but can expect to collect benefits longer.
The youngest workers may do worst of all. Medium income male workers born in 1985 and retiring in 2050 will receive 97 cents for every $1 paid in. This will happen according to current law. If benefits are cut when the Social Security Trust fund is empty, the same worker will receive only 75 cents on the dollar.
As the years roll on, Social Security looks more like a welfare plan and less like a public pension system. How can I say this? Simple. The money’s worth difference between low-wage earners and highest-wage earners has grown over time. And it will continue to grow. In 1985 low-wage workers received about 2.25 times the money's worth of the highest-wage workers. For the kids who are 11 years old today, the low wageworker will receive 3 times the value of the highest-paid workers.
All of this is going on inside our “compact between generations.” If you’ve read this far, it’s a good bet you now know more about it than many of the 535 members of Congress.