For a person retiring in 1960, Social Security presented a pretty great deal: Pay in during your working years and you could expect to receive about seven times more in benefits during retirement. But today's retirees won't reap nearly the same return on investment. In fact, they're part of the first generation of workers who have paid more in Social Security taxes than they will get back in benefits.
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Because Social Security benefits are progressive, the amount a worker pays into and gets out of the system depends on lifetime earnings. As recently as 1985, American workers at all income levels could expect to get more in benefits than they paid in taxes. Most wealthy Americans started getting less in benefits than they paid in taxes at some point in the 1990s, according to Social Security Administration data. Today, only those in the lowest income bracket can expect to get more in benefits than they pay in.
From Social Security's inception through its first several decades, the payroll tax rate paid by workers was low-only 2 percent in 1937. It didn't surpass 6 percent until 1962. For 2011 and 2012, the tax rate was reduced to 4.2 percent, but it's scheduled to return to 6.2 percent in January 2013.
According to a 2011 study by the Urban Institute, a married couple retiring last year after both spouses had worked throughout their lifetimes wound up paying about $598,000 in Social Security taxes. If the man lives to 82 and the woman to 85, they can expect to collect about $556,000 in benefits.
Monday Quick Hits:
- Rethinking the "older middle aged." Author and historian Andrew L. Yarrow laments that "we live in a cultural time warp about what it means to be 'old.'" Today's 55 to 69-year-olds, he says, are part of "a new stage of life that is not what is conventionally thought of as either 'middle age' or 'old age.'"
- Public pension growth staggeringly slow. State and local-government pensions in the United States ended the 2012 fiscal year with a median gain of 1.15 percent, the worst showing since 2009. These pensions count on returns of 7 to 8.5 percent to per year to have enough for retirement benefits.
- Back in the habit? Some boomers who dabbled with drugs in their youth are saying yes once again. In 2010, nearly 2.4 million people in their 50s said they had abused prescription or illegal drugs within the past month--more than double that of 2002, according to data from the National Institutes of Health. And emergency rooms nationwide say they're seeing more patients age 55 and older coming in with problems related to cocaine, heroin and especially marijuana.