People retiring today are part of the first generation of workers who have paid more in Social Security taxes during their careers than they will receive in benefits after they retire. It’s a historic shift that will only get worse for future retirees.
Social Security recipients from previous generations got a much better deal because payroll taxes were very low when they were enacted in the 1930s and they remained low for several decades. If you retired in 1960, you could expect to get back seven times more in benefits than you paid in Social Security taxes and more if you were a low income worker, as long as you lived to age 78 for men and 81 for women. This disparity in amount paid-in versus benefits-received remained true even as recently as 1985. Today, that’s not the case. A married couple who earned average lifetime wages before retiring last year paid in about $598,000 to Social Security during their working careers. That couple can expect to collect only about $556,000 in benefits back from Social Security, assuming the man lives to be 82 and the woman lives to be 85 – a loss of $42,000 not taking into consideration the loss of earning power on those payroll taxes.
Social Security benefits are progressive so most low income workers retiring today will still get slightly more in benefits than they paid in taxes. The shift for middle income workers is happening just as millions of baby boomers are reaching retirement and leaving fewer workers behind to pay into the system. Because of this demographics shift, the trustees who oversee Social Security believe funds to pay benefits will run dry in 2033 unless Congress acts quickly. According to the Social Security Administration, future retirees will probably have to pay higher taxes while they are working, accept lower benefits after they retire, or some combination of both to cover the shortfall.
Close to 56 million people now collect Social Security benefits and that number is projected to increase to 91 million by 2035. Monthly Social Security benefits average $1,235 for retired workers and $1,111 for disabled workers, providing most Americans with a majority of their household income. Although Social Security was never meant to be a retirement program but rather a “safety net” for the elderly, according to the Social Security Administration about one-quarter of married couples and just under half of single retirees rely on Social Security for 90 percent or more of their income.
With these statistics being so dire, it is even more important that you plan for your retirement by setting aside resources in your retirement account now so that you will not have to be reliant upon Social Security when you reach retirement age. Remember that failing to plan means that you are planning to fail!!