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I just looked at my account. During my entire working life from 1959 to 2010 I paid $132,817 in FICA taxes. Add my employers portion and the total is $266,314 (for some reason the employers paid a little more).
During the years I have been retired that equals an average benefit of about $1,387 per month. That is less than my monthly benefit alone was in 2008 and does not count Connie’s benefit on my earnings record or all the COLAs since I retired. We began collecting at my FRA.
In other words, we collected in just under four years all I paid in taxes and in around seven years all my and my employer taxes. Since we have been collecting seventeen years, the difference has grown considerably.
This isn’t about a good investment or not, lost potential earnings, etc. It is just about what goes into the SS Trust and what comes out.
We surely have not paid for our benefits and if SS was a pension, every dollar we collected above $132,817 would be taxable income.
That’s the way I look at it anyway. If Congress is foolish enough to make our benefits tax-free, maybe I’ll buy a larger Mercedes or get a couple of dogs – just kidding.
I hesitate to speak for other commenters, but the reference to inflation adjustments make me think that folks are objecting to this:
“In other words, we collected in just under four years all I paid in taxes and in around seven years all my and my employer taxes. Since we have been collecting seventeen years, the difference has grown considerably.”
Think of it this way, Every dollar you paid in FICA taxes in 1959 is worth about $11 in 2010. So to get back that 1959 dollar of tax , you needed $11 in benefits in 2010. This is based on the SSA’s own inflation indexing factor. If you accounted for inflation for each year of FICA tax, my guess is the payback period would be about double.
“We surely have not paid for our benefits and if SS was a pension, every dollar we collected above $132,817 would be taxable income.”
This statement got me thinking about the comparison of the taxation of SS benefits and qualified pensions. If you were receiving a pension from a qualified plan, and had contributed $132,817, the amount considered taxable each year would be determined by the Simplified Method. This method defines the number of months that you can exclude the employee portion from taxation. For a joint plan, with combined ages (you and spouse) over 130 at the start of benefits, the number of months is 260. So you could exclude $511 per month ($132,817 / 260) or $6,130 per year. You said that you collected all $266,314 of the combined contributions in 7 years. This gives an average benefit of about $38,045 ($266,314 / 7) per year. Excluding $6,130 of the $38,045 leaves $31,915 as taxable, or about 84% of your total benefit. So, at least in your case, the taxability of your SS benefit compared to a qualified pension seems to be a wash. assuming 85% of your benefits have been taxable since you started collecting. One big difference, after 260 months your SS would still be partially taxable up to 85%, but your pension would be 100% taxable income. This demonstrates the tax-preferred status SS holds, and supports the strategy of early Roth conversions while delaying SS, to use that tax-preferred status on a larger source of guaranteed (or as close as we have), COLA protected, joint and survivable income.
Social Security is insurance. It is not an investment. It is not a savings account. It was designed so that current retirees are paid by current workers. It has been that way since it started.
This whole thread is irrelevant.
You are 100% correct. Quinn’s comparing 1959 – 2010 FICA numbers to his current benefits, without adjusting for inflation and ROI (return on investment), is also irrelevant.
I’m missing the point. Old dollars paid in taxes. Inflation adjusted dollars coming out. What investment? There is no investment involved.
Why did you calculate some average benefit that you receive and compare it to the old dollars? Your FICA dollars from decades ago were given to the retirees of that time, they weren’t saved for you. It’s apples and oranges. As Kathy said current retirees are paid by current employees, it’s not an insurance product or an annuity.
You’re right. What we pay in taxes is unrelated to the benefit we collect. That’s a given, but me paying $132,000 in taxes ending in 2010 and collecting two life annuities seems like a good deal to me – too good in fact.
If I purchased a single life annuity with those funds the benefit would have been about $800 a month, a fraction of the actual benefit we both collect after years of COLAs
“It is just about what goes into the SS Trust and what comes out.” What comes out will be significantly increased. The “Social Security Fairness Act” signed by President Biden does this. As per the SS website certain SS eligibility provisions were removed “These provisions reduced or eliminated the Social Security benefits for over 3.2 million people who receive a pension based on work that was not covered by Social Security (a “non-covered pension”) because they did not pay Social Security taxes.” Some of the payments will be retroactive “Many beneficiaries will be due a retroactive payment because the WEP and GPO offset no longer apply as of January 2024. Most people will receive their one-time retroactive payment by the end of March, which will be deposited into their bank account on record with Social Security.”
https://blog.ssa.gov/social-security-announces-expedited-retroactive-payments-and-higher-monthly-benefits-for-millions-actions-support-the-social-security-fairness-act/
Did you adjust what you and your employers paid for inflation?
Let’s see how this works.
Two people work for 40 years, one married.one single. The married worker’s spouse gets 50% of worker benefits. The single worker gets married one year before retiring and his new spouse also gets the same benefit.
However, if he remained single he gets his benefit alone even though he paid same taxes as the married worker.
if the workers widow remarries before age 60 her spousal benefit stops.
If you were married at least ten years your ex-spouse gets your benefit and then you get remarried and another benefit is created.
‘’I’m confused.
And, if you marry 4 different people and are married to each for 10 full years before you divorce, each one of the 4 is entitled to collect a spousal benefit on your record.
Yes they are.
Thanks for posting this.
Only an outfit with a printing press could run an operation like this. Uncle Sam’s lucky.
It seems that way Ben, but really it’s not. All of these things have been paid for by payroll taxes and our employers match. Unlike most things government, no money has been borrowed to pay for those things. This is why the trust fund is projected to run out of money in the next ten years (possibly less). If legislators take no action to fix the funding issues, recipients will see benefits cut when the trust fund runs dry.
Which will be accelerated if the trust revenue is decreased because SS benefits are made tax free along with tips, etc.