Q&A of the Day – How Much People Pay into Social Security Compared to what they Collect
Each day I feature a listener question sent by one of these methods.
Email: brianmudd@iheartmedia.com
Social: @brianmuddradio
iHeartRadio: Use the Talkback feature – the microphone button on our station’s page in the iHeart app.
Today’s Entry: Submitted via talkback asking about how much is paid into Social Security as opposed to what’s paid out.
Bottom Line: This serves as a good follow-up to my breakout of the real state of Social Security and Medicare earlier this week, which if you missed, Social Security is currently pacing insolvency in 12 years while Medicare is set to enter insolvency in only five. Your question hits on another dynamic in our longer-term challenge with the current incarnation of our entitlement programs. How much is going in opposed to what’s being paid out. And the question is complicated based upon the different ways and different ages in which people are eligible to collect Social Security payments – in addition to payouts being based in part on how much was paid in and the timing of when retirees take benefits. Let's start with the basics on who and how many are currently collecting Social Security benefits.
As of last year, there were just over 65 million Americans who collected Social Security benefits. That’s close to 20% of the entire US population. If it sounds high, and specifically higher than the percentage of the population that’s of traditional retirement age, that’s because it is. 18% of all Social Security collection isn’t for retirees, but for those who are disabled workers and dependents. As mentioned in my analysis earlier this week, the current setup of Social Security isn’t ideal as the concept of a “trust fund” was long ago replaced with a “trust fraud”, as there is no account in your name with money collecting interest waiting for you in retirement. There are just a bunch of IOUs because the Federal Government forces you to finance their debt spending with your Social Security benefits (paying out current benefits through current tax collections). That said, the current incarnation of the system would no doubt be more stable if nearly a fifth of the recipients of Social Security weren’t of working age (or even younger in the case of dependents). As for how much is collected by the average recipient of Social Security benefits...
In 2022, the average annual benefit provided to Social Security recipients was $1,614 per month or $19,370 for the year. That figure rises above $22,000 per person for those of retirement age. Without getting into the weeds of the Social Security program. It’s safe to say that those who are of working age, and the dependent recipients of Social Security benefits as well, take in far more in Social Security benefits than have been paid in. I’ll provide overall context for this in a minute, but first to look at where the lion’s share of the payouts are happening in answer to your question. For this exercise, rather than projections going forward which can change, given the looming insolvency of the program which will necessitate change, I’m using data for what happened over the prior ten years.
- Total paid in Social Security taxes (in inflation adjusted dollars + 2% annual interest): $71.3 trillion
- Total paid out in Social Security (in inflation adjusted dollars): $93.4 trillion
So yes, a contributing factor to the economic decline of Social Security is very much a product of the program collecting less from taxpayers than it paid out – with benefits exceeding contributions by 31% on average over the prior generation. This largely holds true today pending what the changes to the program will be. Most categories of seniors waiting until at least 65 to collect Social Security do project, without cuts, to be on pace to continue to receive more than they paid in with one exception. Two income households of above average income are on pace to pay 4% more than they would be eligible to collect – making above average/upper income earners the only net contributors to the program as currently administered. The reason this has worked for as long as it has as configured is due to there being multiples more people in the workforce paying Social Security taxes, than those collecting benefits. As that dynamic continues to shift in the other direction over the next several years due to a combination of lower birth rates and longer life expectancies, insolvency as currently forecast by the Social Security Administration looms in 2035.
Of course, all of this would be a moot point if Social Security were truly a trust fund set up in your name in which your Social Security taxes, and that of your employer on your behalf, would be saved and invested waiting for you to collect as it always should have been. But alas the government perpetuated mirage continues and the wrath of all of its protectors in politics and news reporting come out of the woodwork the moment someone like Senator Rick Scott has the courage to tell the truth.