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Your 35 years of earnings is what determines you social security benefit, not the taxes paid. Here is why.
✔️ Your benefits are paid for life and perhaps to a survivor. Your benefits don’t stop when you have received all you paid in FICA taxes – roughly after collecting benefits for 6 years.
✔️ The SSA averages your highest 35-years of earnings and then adjusts them to reflect the growth in wages using the AWI – average wage index. These adjusted wages are used to calculate your benefits. You paid taxes on the lower actual wages earned over 35 years but your taxes are not adjusted.
✔️ Millions of people receive SS benefits as dependents or spouses never having paid a penny in FICA taxes. There is no exact number, but estimates run between 5-8 million. At least 3 million are minor children who never worked.
✔️ Two workers may have the identical earnings history and paid identical FICA taxes. One could marry and receive 50% more in benefits for the new spouse. You only need to be married for one year before your wife can claim on your record. But if the spouse is the mother of your child, not even the one year applies.
✔️ Both a divorced spouse (after being married at least 10 years) and simultaneously a current spouse can collect benefits based on the workers earnings record.
✔️ Social Security provides annual COLA adjustments and those increased benefits have nothing to do with past earnings, but rather the benefits you are collecting.
There’s a historical context to this, of course. SS was the solution to a problem nearly 100 years ago. Epic poverty and unemployment during the Depression, widespread failure of banks and financial institutions, and little personal wealth in the form of home ownership or investments. SS was intended to provide a basic income for the elderly who had little and, as RDQ often points out, had a much shorter life expectancy than today. Is it any wonder that the system set up in the 1930s (tweaked occasionally, but not fundamentally, since then) isn’t quite fit for purpose today?
Same argument is made on this site about health care. Our employer-focused health insurance system had its genesis in the price control systems of the 1940s economy. Save for periodic lurches (Medicare for over-65s, Medicaid for low income, ACA for a wide swath not eligible for other coverage), the system reflects its origin rather than today’s needs.
I agree that our political system – or our markets – should provide a better solution. I also doubt that they will, be it for political reasons, polarization, or distrust of institutions. Perhaps I’ll go back to the car-buying post on another HD page now. . . .
Agree! All the fixes are band aids on a too old system. It really needs a thorough overhaul. Doubt that will happen, so in the meantime I’ll go with “take what’s given.”
Who paid for my SSA benefit. I did. I started drawing SSA at age 70 but worked, and paid into SSA to age 75, I will never live long enough to receive benefits equal to the time adjusted value of the amounts my employer and I paid into SSA. I expect that is true for most Humbledollar readers. All of us who did are blessed to have it be so and glad to support folks who weren’t fortunate enought to have satisfying work and good income.
That was your choice. I retired at 67 16 years ago.
After six years I had collected all I paid into SS since 1959. If we count my wife’s benefits on my earnings we have collected all employer taxes as well. Now after 16 years with all the COLAs, we hare collected many multiples of the total taxes paid.
….and therein lies part of the problem with S.S. While those were the rules of the game when most of us contributed to the system ( therefore you were due that lifetime “income assurance”, no issue there); it is not sustainable to have future high lifetime income retirees become a drain on the system beyond what they have contributed.
A lifetime cap needs to be placed on benefits for people at or near the maximum S.S. recipient levels in the future. Naturally the cap should have some time value of money factored in vs just the number of dollars contributed over the years. If that future cap or some “opt out” diminished payout is in place by the time I turn 70 fine by me, I’ll sleep better.
Things need to be restructured so that in the future, those with the means should be fountains, not drains to help sustain the system.
i wouldnt brag about all the dollars your wife collected while she contributed very little to the system. Every week, I see older married women — some of whom sit on their walkers— who work as cashiers at Walmart to pay for those benefits.
And a number of elderly never married women (and men) who never made a high income. I bristle when people say ” they should have saved more”. As my mother used to say ” There but for the grace of God go I”
Not sure what one has to do with the other. I was just pointing out that millions of people receive benefits in excess of taxes paid or not having paid at all. I suspect those women need the income. Why is the real question and problem.
They do need the income but every dollar they earn is subject to SS tax, and that money goes directly to SS beneficiaries—including spouses who never paid into the fund.