Originally posted April 29, 2017.
The average person over their lifespan will contribute to these programs much less than they will receive.
The following chart comes from a PolitiFact article, which received its information from the non-partisan Urban League. It shows in 2012 dollars that the average two-income couple earning an average wage will receive about 274,000 more in benefits than they will contribute in Social Security and Medicare.
(The Urban League has more raw information but not as helpful a chart as the PolitiFact article shows.)
As we can see from the chart above, the Medicare discrepancy in benefits/contributions is much wider than the Social Security discrepancy.
However, that was in 2012 dollars. Social Security is about to get worse. The workers-to-recipients ratio is going to be reduced significantly.
The Social Security Office of Policy notes that right now 12 percent of the United States population is 65 or older. However, by 2080 that number is going to almost double to 23 percent. By 2020 it’s projected to be 16 percent of the population. That doesn’t sound as bad, but consider that’s a strong 33% increase from 2005.
The following chart that comes from the Social Security Office of Policy’s website shows the projections in number of people ages 65 and older.
What does the worker need to pay?
Now, what does this mean for the average worker? Our website is focused toward workers, so how does this affect them?
The workers are the ones who need to be paying for the benefits. Social Security and Medicare are not investments like a 401k or stocks or bonds. We pay into our parents’ accounts, and then our children pay into our accounts.
As of 2005, the worker-to-beneficiary ratio was 3.3, and by 2040 that ratio will drop to 2.1.
So that means you’ll need to pay 54 percent more into Social Security and Medicare than you are now.
Let’s do the math.
Let’s assume you’re earning $50,000 a year today. You are paying:
-A 1.45 percent Medicare tax and your employer is adding another 1.45 percent.
-A 6.2 percent Social Security tax and your employer is adding another 6.2 percent.
For practical purposes, let’s assume you paying both the employee and employer portion of the tax. Because you kind of are. Your employer is factoring that cost into whether or not they can add employees. Without that rate your employer is paying, in many cases the employer would probably be paying the employee a higher salary.
So let’s assume that you’re basically paying 15.3 percent of your salary to Social Security and Medicare.
That comes to $7,650 a year that you’re paying into Social Security and Medicare.
First of all, you already are not paying enough into both programs for it to pay for itself. As noted above, the average couple is receiving about $274,000 more in benefits than they’re paying in.
That is 28.5 percent too little.
So for starters, you would need to pay in $9,830.25 instead now.
Secondly, we would need to tack on another 54 percent in order to pay for the beneficiaries because the worker-to-beneficiary ratio will decrease.
So that means you’ll need to pay $15,139 by then.
It will feel like a $7,489 pay cut.
Can you afford that much of a pay cut?
We need to change something quickly
If the average worker or the average family were in the same situation that the federal government were in, they would realize that something needs to change.
They would realize they can’t continue with a $442 billion or more annual budget deficit, especially when they’re projected to have to spend more on retirees.
There are some options that are relatively painless, but they would involve some political willpower. At this point, we don’t seem to have much.
A few possible options:
-Raise the retirement age, preferably by offering some assistance to employees with physically demanding jobs such as construction workers or laborers.
-Reduce the cost of living adjustment each year.
-Increase the wage ceiling from its current cap of $127,500.
Understand that no matter what the solution, it would involve making people pay more or reducing benefits.
Either way, the average worker cannot afford to pay for all of these benefits.