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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, b