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I’ve heard it many times, it’s all over social media. I earned my Social Security benefits, I paid for them.
We certainly paid taxes (actually under a separate law) to fund Social Security and all its benefits beyond retirement income, but we did not pay for OUR benefits.
According to SSA actuaries and Congressional Budget Office studies:
A medium wage worker with a non-working spouse also collecting on the workers earnings will shorten the recovery period.
Connie and I are collecting on my earnings record and after looking up my SS earnings record our combined benefits exceeded both my and my employer’s taxes paid about ten years ago.
If workers received SS benefits based only on FICA taxes they and their employers paid, their benefits would generally stop after 6-9 years. 🤔
A few words about non-earning spouses.
The benefit for non-earning spouses is part of the protection baked into SS. The cost of the protection is part of the payroll taxes that workers and employers pay. It’s a temporary benefit that vanishes when 1 spouse dies. Most non-earning spouses gave up the opportunity to earn, in order to raise children. Raising kids is essential to the economy and the future of the country; one could argue that nothing is more important.
The benefit also protects non-earning spouses who suffer divorce after raising their family. Again, this is insurance, and it’s paid for.
For what it’s worth, the percentage of women receiving spousal benefits is decreasing:
In 1960, about 33% of women received only a spouse’s benefit.
By 2010, this figure had dropped to about 10%.
I assume because more spouses are earning their own income.
That’s exactly the reason. I would love to know the reason for the red arrow.
Some say that it would be better if we were each able to put the equivalent of the SS tax collected into a personal retirement fund. That is not necessarily so.
The argument ignores a few things. SS taxes pay for spousal, survivor and disability benefits. While the taxes are collected during our working years, 40 “work credits” are required to be eligible for retirement benefits. That’s only 10 years of work. To achieve the highest benefit one must work and pay taxes for 35 years. Paying SS taxes on annual $50,000 earnings for 10 years could earn a retirement benefit of about $7,800 per year. The payout over 30 years would be about $234,000. The tax collected from the employee would be about $100,000.
One could save 7% of their salary for 10 years, but at a reasonable withdrawal rate the money would likely run out in less than 30 years, unless it was saved at a very early age, invested and compounded. When it runs out what would one do?
In a marital divorce, one may lose significant assets to the other party. That can include 50% or more of retirement savings. Benefits earned and collected in the future for SS retirement is not subject to this. The overall divorce rate is about 20%, although in certain professions it is 50%.
It is recommended to have six times one’s salary saved by age 50. According to some sources, the average American has $250,000 at age 65, but that includes one’s home. Assuming 45 working years, that’s at most $5,560 saved per year including growth. That’s insufficient for a retirement of 30 years, or more. My point is, many people simply are not able to save sufficiently for retirement. I doubt if they would save an additional 6-7% per year throughout their entire working life, were they given total control of the SS tax they pay. However, the recommendation is to save 10 to 15% each year for retirement.
For diligent savers, keeping that SS tax and applying it to a retirement account would be nice. That 10% saved each year could increase to 15-20%. But many of us are not those kinds of savers. If we were, the average savings at age 65 would be much higher than the $250,000 average.
Some would be tempted to put it into real estate, but we know how that turned out in 2008. Some people put their life savings into Enron stock, and then there was Theranos. Today some will invest in Bitcoin, the outcome of which remains to be determined.
You are right, that argument to self-fund has many flaw’s. People who support that forget the full extent of benefits from SS beyond individual worker retirement.
If we just adjusted the tax rates to meeting the annual projections of the actuaries there would not be a problem.
Plan sponsors of pension plans adjust their funding annually (or should) to meet funding requirements. It should be the same for SS.
Agreed, Norm. Some people just don’t understand that SS is a wonderful insurance policy, with all those protections that you list.
Whenever I hear someone saying we’d be better off on our own, I think it would be fun to see how much they have managed to save on their own. I bet the results would mostly be, not much.
Also survivor benefits. I had a friend in school long ago who lost her dad. She received survivor benefits as a dependent child along with her sister and mother.
To be fair, we should also recognize that the time value of money should be considered when making these comparisons. The payroll taxes were paid over an individual’s entire working life, sometimes decades before benefits began. If one were to calculate the future value of those early contributions, including a reasonable rate of return, the actual “break-even” point—where the benefits received equal the contributions plus interest—would be significantly longer than the 6-9 years mentioned.
Bob, you are correct.t I took a look at this earlier this year, using my actual earnings record, from 1973 on. The $11 i contributed in SS tax in 1973 does not equate to $11 in benefits in 2025. If I added up all the nominal taxes from 1973 through 2024, and compared it to my Jan 1, 2205 monthly benefit, payback would take 3.7 years. I then used the SSA’s inflation indexing factors (the same factors they use to calculate your AIME), to come up with indexed yearly taxes. I think this is a good way to look at it, because it treats a dollar of SS tax the same way the SSA treats a dollar of income when figuring your benefit. It also removes any argument about investment returns. The indexed, or real, taxes are about double the total amount contributed, and the “payback” period increases to 7.5 years. If you include employer contributions you get about 15 years for the payback. I’ve heard a number of arguments about whether it is fair to consider employer contributions when lookin at SS payments. I’ve had a sole owner business since 2017, and I can attest that both sides of the FICA tax are real. It’s interesting that 15 years is about the breakeven point for early climbing vs. waiting till FRA.
Your estimate of a 15 year payback period isn’t much less than the 18-19 years that the average American receives SS benefits.
Those aren’t investments, they are taxes, taxes paid for a form of insurance. I don’t see that as a valid comparison although many people like to make it.
The reality is many events can happen along the way to retirement age that SS will cover, but counting on the ability to save the equivalent of taxes will not- early death, disability, divorce, job loss, disabled children, etc.
I checked the total paid to me via social security and compared it to the amount paid in by me. I received an amount equal to all the dollars paid in within 5 years of my retirement. This is before any deductions for Medicare. If I include both my and the companies share paid in, it did take longer. But that additional tax was not paid by me, unless I paid what is called the “Self-employment tax” which I sometimes did, as a self-employed consultant. My benefit excludes any spousal benefit paid.
As far as I’m concerned it is a very good deal. To date I’ve received nearly 3 times what I paid in ignoring inflation. In 1963 I worked as a part-timer while attending high school. My taxed social security earnings were $545. In 1964 I worked 5 months at 40 hours per week plus overtime. My taxed social security earnings were $2,303. I also paid Medicare taxes. In 1964 I was being paid at the rate of about $2.25 per hour. Medicare taxes did not begin until 1966.
A friend asked all her Facebook friends to share a really great post about SS. These are a few irrefutable facts it cited:
SS must be over funded because of all the people who die before they begin collecting.
The average benefit is $1016 (or close to it) per month.
The government takes the money and spends it. AND
If the payroll taxes were invested in safe, interest bearing accounts, there wouldn’t be a crisis.
Thank the lord for that post. Now I finally understand.
I hope everyone realizes that those “facts” are all incorrect.
And many people believe it all. Very sad.
What upsets me most is people state things or pass around anything they see with zero effort to check facts which these days is easy to do.
That’s true even when a post on social media is totally illogical or defies common sense- for most people anyway.
And the system has spousal benefits. Basically a non-working spouse can get half of the earning spouse’s benefit. It might be time to look at that benefit.
I believe you mean a non-earning spouse. S/he was working, just at home.
You are right, of course. Connie did all the hard work and then some more for the community volunteering.
Did they pay Social Security taxes?
What about an ex-spouse or two concurrent with a current spouse?