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When I read Social Security is a scam or that Congress stole the funds, or “I paid for my own benefits,” I find it very upsetting.
When someone says they paid Medicare taxes while working so why should they pay premiums in retirement and also demand to know what happened to the money, such ignorance is disturbing-mainly because there is no effort to learn the facts.
During my working life I paid $132,817 in Social Security taxes. That was between 1959 to 2010. My employers paid a similar amount.
Since my wife and I began collecting Social Security benefits – on my earnings record- in 2008 we have received about $798,750 in combined benefits. That is 213 months of benefits including COLAs.
Based on my average monthly benefit alone, during the first six years I received in benefits more than I paid in taxes. After eighteen years of benefits we have collected way more than I and my employers combined paid in taxes.
As far as Medicare goes, sad to say, the return has been even greater. Frankly I wish it had been zero. My total Medicare taxes were $98,080 including a lump sum check of $16,000 I had to pay at retirement because part of my pension is considered by the IRS as deferred compensation.
The initial emergency treatment for Connie’s eye injury a few years ago resulted in Medicare claims over twice the taxes paid and there has been much more over the years since, plus unrelated care. Since last October her weekly treatments have been about $13,000 each.
Part A is funded mostly from the payroll tax, but also from a portion of income taxes paid on Social Security benefits.
Higher income earners pay an extra 0.09% payroll surtax on pay generally above $200,000.
Part B is mostly funded from general government revenue plus beneficiary premiums which equal 25% of the Part B costs. IRMAA premiums are higher than the 25% equivalent.
NOTE: income taxes paid on SS benefits go into the Social Security (up to 50% level) and Medicare Part A trust funds (between 50% and 80% level).
I will leave it to the spreadsheet gurus to apply present value, ROI, break even and such to these numbers. I see these programs as a good deal, probably too good. They definitely relieve financial stress for retirees.
And let’s not forget it is all insurance, there will always be some financial winners and some losers, but all seniors have protection.
For most retirees the ongoing cost for Medicare plus a Medigap policy protecting from out of pocket costs is under $500 a month including Part D. Part D varies greatly though based on plan choice and is also subject to IRMAA.
Not inexpensive, but when you consider the higher cost risk for the over 65 group, not a bad deal either. Most working Americans pay more that 25% of the cost for their health insurance plus high out of pocket costs.
Medicare premiums increase because the use and cost of health care services increase each year. Nobody is being unfair to seniors as some people claim. Interestingly, the fees Medicare allows barely and in some cases don’t cover the actual cost of services. This drives cost higher for other payers.
The fact we have four major types of payers-Medicaid, Medicare, commercial insurance and self-pay – each at different levels – is one of the major flaws in our system.
Please don’t comment that instead of paying taxes for SS, a person could invest the money and come out better. That’s a theory fraught with variables and assumptions that would never be realized for 99% of Americans- IMHO.🤑
I’m still working and self-employed at age 60. Wife just started Medicare / Part G / Part D / IRMAA this year. We pay a lot in premiums – but they’re deductible against my business income on our tax return like traditional health insurance would be. So, the considerable cost is effectively knocked down about 35-40% (marginal tax rate for high-earning Californians). Yup, I ain’t complaining about it. . . . too much.
Does your business reimburse you for Part B, D and Medigap premiums? My old company used to do provide supplemental coverage, but terminated it and gave us an amount annually to help buy Medigap on our own.
For most working Americans, Social Security and Medicare are not bad deals. They are not charity. They are earned protections built through a lifetime of work and taxes. They help retirees sleep at night, help widows and widowers survive financially, help disabled workers and families stay afloat, and help seniors receive medical care they could never afford on their own.
We can argue about how to strengthen these programs. We can debate funding, premiums, retirement ages, taxes, and reforms. But calling them scams ignores the reality that these programs have protected generations of Americans from financial ruin.
In my opinion, Social Security and Medicare are among the best examples of shared responsibility in America. You pay in while you work. You receive protection when you need it. And if life hits harder than expected, the system is there.
That is not a scam.
That is insurance.
And for most Americans, it is one of the best benefits they will ever receive.
Exactly. And yet many people don’t feel that way and likely would be opposed to tax increase to sustain it. I am convinced Americans simply do not make the connection between taxes and what they provide in a society of 340 million or that millions of us need more assistance than others.
If only the disturbing ignorance you highlight regarding Social Security and Medicare were the only intellectual drag on current society; I fear it is but the tip of the iceberg.
I agree
There is a case when public employees hate Medicare. My wife retired from State of Texas 13 years ago with full retirement benefits and free health insurance (the state paid 100% of premium). This year she will turn 65 and State requires you to be on Medicare as primary, the state insurance will be secondary similar to medigap + prescription (state paid 100%), but now she have to pay nearly $400 / month for part B premium. Still much better, but that is not expected.
All employers require Medicare to be the primary coverage when a person is retired. If she is paying $400 for Part B you have a hefty household income. ($274,001 to $342,000)
My wife turned 65 in November. The economics of the change are interesting.
After her retirement, but before Medicare, she had a high-deductible, Blue Cross plan. The deductible was over $8000. In conjunction with the plan, we had an HSA. We funded the maximum each year. We also spent the full HSA each year in deductibles. In rough math, her costs were $12000 in premiums and $4000 in out-of-pocket costs. I will ignore the tax savings on the HSA contribution. Total=$16000/year.
On Medicare, costs are Medicare premium + IRMAA+ Part D Medigap (G) + Part D prescription coverage (+small co-pays) + Medicare Part B deductible. Total= $10700
The Blue Cross plan gave her a broad network to choose from for doctors, hospitals and pharmacies. However, with such a high deductible, the benefit was basically getting Blue Cross pricing + government mandated mammograms and vaccines for free.
Plan G Medicare has an “unlimited” network. While she has not seen the maximum “benefit” of the program, it is a better plan than the private option she left behind. In summary, Medicare is around a third cheaper than the private plan in her example.
That is the case for most people and over 90% don’t pay IRMAA.
Medigap plans don’t have networks, they simply pay what Medicare doesn’t wherever services are rendered.
People I know consider Medicare a good deal for insurees. In fact, I know people in early 60s who are eagerly waiting to become 65 and qualify for Medicare.
Per AI, people pay only 20% of Part B cost for doctors, tests and outpatient care. Part A for hospital stays covers costs up to 60 days after a $1700 deductible.
That sounds like a really good deal.
Part B premium is 25% of the total cost, except for those who pay IRMAA premiums. Part A pays beyond 60 days wiz reserve number of days that can be used.
Do you actually believe that our high school teachers could even explain finances to their students? When I took a college finance course taught by a stockbroker, he said that to compare taxable bond yield to a tax-exempt bond yield, you just double the coupon of the tax-exempt bond yield. Yikes.
This was intended to be a comment on Nick’s comment.
I have absolutely no issue with Medicare, Part B (Doctors and non-hospital medical). My wife and I applied for and started being covered the month after I retired at age 65 and 8 months. Along with her generous retiree 2nd health insurance benefit which covers us both it reduces our co-pays to $15/ visit. We go to whatever doctors we wish and have NEVER had Medicare questioned or denied as our primary provider.Yes, doing the math on health cost coverage and “savings” vs. what we paid in might be a bit more difficult, especially because of the ridiculous “CHARGES” that are submitted vs. the Medicare approved amounts that they pay based on, but it is still good payback vs. what we paid during our working years.
At the risk of being stoned here, I should also add that my wife’s retiree benefits include reimbursement for all the Medicare premiums we pay in retirement including substantial IRMMA premiums we pay. A very good deal, indeed!
This sounds like NY state. My father retired in 1990 but had his premiums reimbursed for years by NY state, as far as I know until he died in 2012. When he asked them they claimed it was his unused sick time and vacation time. For 22 years?
he did the math and called them several times but they never agreed with his calculations and kept paying.
Let me guess, your wife was a school teacher or other state employee.
lol, close….NYCERs, a Nurse who ran Homecare for NYC HHC for many years.
That sounds like a very good guess. Out of necessity I have had a front row seat with an aged relative’s state pension and supplemental healthcare coverage. I was particularly impressed with the creativity with which the usual COLA increases-when not able to be publicly supported for a time due to abysmal state finances, were offset by a state income tax credit of sorts for affected pensioners to in effect give the COLA increase anyway- more or less under the radar. Very creative.
It warms my heart to know that a good portion of the population gets such generous retirement benefits and often at a younger age than the general population as well. Nice to see promises kept.
That said, these are expensive promises to keep making.
Public employees while having lower salaries in some professions have a higher total compensation in terms of pay and benefits than the private sector and 90% or more still have defined benefit pensions.
Benefit costs are far less easy to manage than salaries.
The public generally supports that especially for teachers which is fine but then no complaining about property and state income taxes.
…or federal taxes either. I suspect my heart will warm even more, (maybe even overheat) in coming years at federal and property tax time to help keep all the public employee defined pension and retiree medical benefit promises. I gave up paying state income taxes over a decade ago so sadly I won’t feel the same warm satisfaction from contributing through that channel.
I suspect that your reimbursements have to be claimed as income.
David, having recently completed my tax return, these reimbursements were not included in her 1099- R that we got for her pension. That said, it also doesn’t count as income for our NJ Stay, property tax benefit that we qualify for based on taxable income.
We get a substantial IRMAA reimbursement as well (from my husband’s retiree benefits). It doesn’t cover everything, but it lessens the sting a good deal.
I’m a bit surprised. I thought this post would generate more discussion. Maybe the HD folks are too knowledgeable on the subject. I know the Threads and Facebook crowd sure aren’t though. 🤷🏻♂️
There is thing you can control, other you can just do what is best for you. Does not matter what you said is fact or complain, there will be no change.
Dick,
As to, “I’m a bit surprised. I thought this post would generate more discussion.”
I think this is because you have covered this topic several times and the subject has been “talked” out, at least by us long time HDers.
My reaction as well.
Talked about SS and Medicare before for sure, but I don’t recall from this perspective.
Writing for interest and trying to stick with a personal finance connection is getting harder after all these years.
I wish we had some idea of the new traffic on HD.
I’ve only been on Medicare for nine months and am not drawing Social Security yet, so I don’t have many opinions about the whole thing. Because of my pensions and my husband still working, our IRMAA bite is pretty substantial. I don’t feel angry about that—paying IRMAA means you’re doing well, after all—but it’s made it harder to feel like I’m “getting something I paid for.” I do like going to the doctor and not having to pay a $35 co-pay anymore, and my prescriptions are cheaper, too. 👍
Hey Dr Lefty,
“I don’t feel angry about that—paying IRMAA means you’re doing well…”
You are correct. Per AI those who pay IRMMA are in the top 7-8% of income for Medicare recipients.
Congratulations! Job well done.
Thanks, but we won’t be there forever. My husband’s going down to 50% time in October, and then we’ll see how much longer he keeps working after that. But we’ll still be (beyond) fine, and we’re grateful.
Remember once your income drops below the IRMMA level you can ask the IRS for relief as the payment is based on your income the three years prior.
As far as Medicare goes, I hope you never get your moneys worth and rarely have the need to use it.
Right?!
I’m going to start seeing a cardiologist soon. I’m blessed to have made it nearly to 66 without being treated for heart problems yet, but my family history and risk factors are really bad. Hopefully preventive cardiology can give me some additional healthy years.
Dick, some folks just don’t have the capacity to understand the situation, while others have no desire to hear facts that conflict with their emotional narrative.
You are right on both counts. I vote for the latter being the majority by far. We seem to be a society of people seeking comfort in playing the victim rather than taking responsibility.
The misunderstandings about SS and Medicare are rooted in the lack of financial education for quite a few Americans. I wish schools would do more to educate our youth so they grow up more knowledgeable and as a result make sound financial decisions.
Yup, that would help.