When someone retires, how long does it take them to receive all the money they’ve contributed to Social Security during their lives? Someone told me back in the late 80s that the average retiree receives Social Security payments that exceed the total amount of ALL taxes they’d paid over the course of their lives adjusted for inflation within two to three years after retirement. Is this true? If not, how long does it take?
This is very hard to say. In the first place, Social Security is (in theory) a combined retirement and disability plan. You should do a proper calculation to figure what part of the payments made into the system was already “spent” to buy disability insurance. In the second place, do you want to compare it to just your contribution or to the total contribution. That is, yours and your employers. Currently you pay 6.2% on your income up to $106,800. Third, it depends when you retire. If you retire later you receive higher monthly payments.
But if we use the Administration’s sample page,
http://www.ssa.gov/mystatement/sample3.htm
they show a worker who’s paid $29,916 in taxes (twice that including the company). He’s currently entitled to receive $1543 a month if he retires at age 67, so he’d receive back all the money (not inflation adjusted) he’d paid in in a little over 19 months – or 38 months if you include what his company paid.
I’d guess that might be fairly typical since it’s the example they chose. Note though he’s only been working 24 years total so he’s probably not yet ready to retire.
Further complicating it is that the payback period has changed over the years, and will continue to change as the program is revised. I refer you to Ida Mae Fuller, the first beneficiary of Social Security. She contributed $24.75, and her first benefits check was for $22.54. Over her lifetime she withdrew $22,888.92.
It should be noted that these examples don’t take into account the time value of money or the return on investments. $100 paid in 1960 is now going to be worth far more than $100. Other retirement vehicles like IRAs, 401ks and annuities work the same way - you expect a return on your investment that will enable you to draw out far more money than you put in. Social security is also based on the idea of a return on your investment, even though the government hasn’t actually made any investments.
Every so often, for at least 5 years now, I’ve gotten a letter from the SSA, it lists how much I’ve earned annualy, over the years, starting when I was 16, 'til now, and how big my check will be, assuming I never work again, when I’m entitled to start collecting. If you’re paying into social security, you should be getting a letter like that, and you can extrapolate.
Until you are age 21, you are not entitled to any SSA retirement benefits based on your work activity. So what you earned before you reached age 21 is immaterial in computing your benefits.
If you die having never married, that’s the end of your benefits. But if you die leaving children under the age of 16 and a widow over the age of 60, they will all be entitled to benefits. The children’s age can be extended in some cases if he or she is attending school. The widow can start receiving benefits at age 50 if she is “disabled,” as determined by the SSA. (Of course when I use “widow,” you can substitute “widower” if that be the case, as otherwise that would be discriminatory.)
Right, you’d get interest. What we need to do is compare- if you put the same amount of $$ in a 401k (with 100% employer matching) based upon the Savings Bond “rate”, how much $ would you have when you retired? Then, assuming you rolled the whole thing over into a Annuity, how much would that pay per month compared to Social Security?
For example, I have worked for the Gov’t for 20 years. I have put around $35k in my 401k out of my pocket, with matching that just about doubles to $70k. I have about $150K now in the 401k, which if I was 65 would pay out something like $1200/mo for the rest of my life. That’s about what Soc Sec would pay. I figure I have paid into Soc Security more than $50K.
Now, if I just took out the $35K I actually paid into the 401k, it’d last about 30months @$1200/mo. As compared to $1200/mo for the rest of my life. So, just figuring how much you paid in then dividing is not realistic.
Didn’t some guy just get 150 years for this?
Yes it has, it loaned money to the US Treasury and received interest.
You are aware that the US Treasury and the SS are both units of the same government aren’t you? They can exchange as many pieces as paper between them with any fictitous interest printed on them as you want but it doesn’t mean anything whatsoever. Almost all the actual money was spent long ago and isn’t coming back. If this was a company doing this the executives would be in jail.
Nonsense. The SS has excess funds currently, so what do they do? Invest it in the stock market? Problem is that they have so much money that buying and selling from theor portfolio will create huge disruptions. Also, the stock market is too volatile to invest large amounts of a retirement portfolio that will be needed soon. Instead, they do what any responsible person would do: invest in safe bonds. Now whose bonds shlould they buy? Brazil govt bonds? GM corporate bonds? No, they chose what historically has been the safest bonds available: US govt bonds. From the SS admin’s POV they have done exactly the right thing.
Meanwhile, the rest of the govt started a couple of wars that are costing hundreds of billions of dollars, continued to increase other spending, and then in the final act of lunacy decide to cut taxes at the same time so they have less revenue. Now the safety of those bonds are in question; not because of anything SS did but because of an unholy alliance between liberals (increase spending) and conservatives (the war and cutting taxes).
The general fund has consistently reimbursing the bonds bought by the SS fund for decades, and will continue to do so unless WWIII breaks out and Washington DC is nuked. They may have no legal obligation to do so, but defaulting still has a large enough political and economic downside that no future congress or President would consider it.
They did not invest the money. They spent it. It’s gone (for the most part). They rest is purely a sham involving pieces of paper being shifted around that have absolutely no value whatsoever.
Let’s say you have $20. You write an IOU: “I DanBlather owe DanBlather $20.” You tell yourself “I have always paid back loans with interest.” (This seems to be a magic phrase for some stupid reason.) You spend the $20 on a nice meal.
How much is that IOU worth? Zero, zip, nada. Where is the money? Gone, it’s no more, it’s a deceased parrot. (Oops).
An IOU from a person/corporation/government to itself is always completely worthless. Throwing out nonsense about how secure TBills are and such has absolutely no bearing on the matter. (Especially since they didn’t invest the money, they spent it!)
These are facts folks, not a debatable issue. If you don’t understand this, please don’t work in finance.
Except Dan Blather presumably pools his revenue. The SS fund, on the other hand, is funded by a dedicated tax, while the General Fund is (mainly) funded by federal income tax. In the future, the Tbills will be redeemed and the General Fund will make payments to the SS program. The SS will then be funded partly by the federal income tax, allowing it to run pay its obligations without raising its own tax. The effect on the bottom line of the federal gov’t as a whole is null, but the effect on the fund is not.
And this makes a real difference to people who’ve invested in the fund, since by and large the people who’ve put a large chunk of their money into SS are not the ones who are paying much for the General Fund (since the one tax is progressive, the other regressive). The people paying into the former have had to pay more taxes as the SS raised a surplus, but in the future they will receive that money back plus interest from the latter group.
It’s in future federal income tax collections.
They describe an event that will happen in the future, that the General Fund will pay into SS, so I’d say they aren’t worthless. They may not effect the bottom line of the federal gov’ts assets/expenditures, but they do effect the bottom line of different parts of the tax base that is responsible for that bottom line.
Since the with holding is 15.3 percent, figure it out. But every case is a bit different. If you are working and paying in for 35 or 40 years, then it would take a while. But your income does not stay the same for your whole career. so it would take some computing.
But this is in no way shape or form different from the scenario I described. The hypothetical DB will in the future earn $20 and “pay himself back” from those future earnings. But so what. That’s a new $20 and the original $20 is gone. It’s a fantasy to try and relate the two.
An IOU from yourself to yourself is always wortheless. Why is this not crystal clear to certain people?
As much as I distrust government programs, I think that you are wrong on this. It would be like if you take $100 out of your savings account as a loan to get you through until payday at which point you repay $105 from checking into savings. You “borrowed” money from yourself, but repaid it with interest.
Sure, you are just transferring pieces of paper around, but in the end, that is all our whole monetary system is.
Right, except I think it’s dangerous to try and analogize too much from a personal savings point of view. The federal gov’t isn’t a person, and your analogy misses and important point: the revenues and obligations of the SS fund come from a different (albeit overlapping) group of people then those of the General Fund.
A more exact analogy might be if DB kept a college savings account for when his kids grow up that he, his wife and occasionally some Aunts and Uncles pay into over the years. In a midlife crisis, DB raids the fund to go buy a sexy convertable, but tells his wife he’ll pay it back with interest. He’s under no legal obligation to pay back into the fund, and the bottom line of the DB household isn’t effected by this internal IOU, but the concequences for DB and his kids if he doesn’t mean he probably will do so. And while the bottom line of the DB household isn’t effected, the future of his children is.
But what are DB’s legal options?
He can: finance it with “different” debt or pay it out of current income. There’s no “trust fund” anymore and the internal IOU can’t be cashed at a bank.
Furthermore, he can choose to reduce the amount he wants to pay the kids or pay nothing at all! He has no legal obligations to them, since it was his money all along.
THAT’S the point some of us are trying to make. The IOU is totally meaningless except as a promise. It’s not a real debt like a credit card, a bank loan or even a written promissory note. It is not legally enforceable. And it’s not a fund or an asset, because they’ve spent it.
It has no more value than any other promise made by any politician.
Social Security tax is 6.2%. So if you work for 25 years, you pay the equivalent of eighteen and a half months of your salary.