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Check the Math: Social Security Is a Good Deal

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It's a question lots of people have about Social Security: Do you get back as much as you put in?

But this question only gets at part of the story: Social Security is a kind of insurance, not just an investment. It protects you and your family from things nobody wants to think about -- death and disability. In other words, it contributes to well being and peace of mind in ways that may be impossible to measure.

A few months ago, Social Security's actuaries looked at the question of whether people get a positive return on their payroll taxes, as noted in this Reuters article.

They found that in the great majority of cases, for people born between 1920 and 2004, the answer is yes.

Individual factors make a difference. The longer you live, the more you get back. Low earners tend to get larger returns, because of the progressive design of the benefit formula. High earners tend to get lower returns for that same reason.

Although the future is less certain for young people,  the Social Security analysis found they also would get positive returns. That's even with potential changes to program, such as higher payroll taxes or reduced benefits.

You can look at the "deal" you get from Social Security in other ways. Earlier this year, an AARPanalysis found that a worker would need $386,000 to buy an annuity that guarantees income equal to Social Security's average retirement benefits. In the past, the Social Security Administration has compared its disability protections to insurance with a face value of $329,000 (for a typical family), and its survivor benefits to a life insurance policy worth $476,000.

Unlike investments on Wall Street, Social Security benefits are guaranteed by law and adjusted for inflation. They continue until you die and may cover your dependents for years after that.

These insurance protections built into Social Security are sometimes overlooked in the public debate. But if you stop to think about what Social Security means to you - not just today, but in a future that comes with risks - they are worth remembering. They are all part of its value.


Want to know more about Social Security? Check out our online resources. If you have benefit-related questions try AARP's Social Security Q & A tool, and learn about  our book, Social Security for Dummies.

Photo courtesy of Calignosus via Flickr Creative Commons

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