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Up until now, Social Security has been a windfall for many retirees: They collected far more in benefits than they shelled out in taxes.That's changing. Many of those retiring will have paid more into the coveted entitlement program than they will get back. Here are the numbers: A couple who each earned the average wage during their careers and retired in 1990 would have paid $316,000 in Social Security taxes, but collected $436,000 in benefits, according to data crunched by Eugene Steuerle, an economist at the Urban Institute. Had that couple turned 65 in 2010, however, they would have paid $600,000 in taxes, but could expect to collect just $579,000. This is the first time in the program's history that taxes outweighed benefits for this group, a couple with average earnings. The imbalance will get more pronounced for future generations of retirees. Couples now in their early 40s will have forked over $808,000 in Social Security taxes by the time they retire, but get back only $703,000 in benefits. The Urban Institute included payroll taxes paid by both the employee and employer, but did not include the portion used for Social Security's disability insurance program. Since 2000, taxes for just the retirement program have totaled 10.6% -- 5.3% from the employee and the same from the employer. The levy is paid on income up to a certain threshold -- $113,700 for 2013. The institute said it adjusted its calculations for inflation plus 2%, about what a person could have traditionally realized in savings had they put the money in the bank. So why is the shift happening now? It's because the first waves of recipients saw their promised benefits rise without sufficiently large tax increases to pay for them, Steuerle said. Rates rose significantly after the program was overhauled in 1983. "Younger generations are paying much higher tax rates for the same benefits," he said. Still, there are many folks who will collect more than they'll have paid. The typical American couple do not each earn the average wage during their careers since women often have lower incomes or take years off to raise children. In this scenario, the couple would receive more benefits than they pay in taxes because the wife's checks often will be based on her husband's earnings. Also, most lower-wage workers receive more in benefits than they pay in taxes. To be clear, Social Security, created in 1935, doesn't operate like a savings account. Today's workers' taxes are funding the monthly checks being sent to today's retirees. Related: Seniors say, 'We can't afford Social Security cuts' When it comes to Medicare, however, virtually all Americans are getting far more than they pay in taxes, which is 2.9% on all of one's income, not including thenew 0.9% surtax on high earners.The couple turning 65 in 2010 paid a scant $122,000 in Medicare taxes, but can expect to get $427,000 in benefits. And that pattern isn't reversing any time soon ... the spread actually widens for future generations. Though many people are now putting more into Social Security than they will take out doesn't mean the entitlement program is on sound footing. A big part of the problem is that there are fewer workers to support the growing number of retirees. The system is now paying out more in benefits than it collects in income, with the difference coming from the so-called trust fund, the result of surplus revenue previously paid into the system. But the trust fund is set to run out in 2033, after which the program will only be able to pay about three-quarters of promised benefits, according to the Social Security trustees. "What we are paying into the system is paying for our parents' benefits," Steuerle said. "But it's not clear what that entitles us to get from our kids." CNNMoney (New York) First published April 14, 2013: 11:48 PM ET Skip to content
Who Pays for Social Security?Workers and employers pay for Social Security. Workers pay 6.2 percent of their earnings up to a cap, which is $127,200 a year in 2017. (The cap on taxable earnings usually rises each year with average wages.) Employers pay a matching amount for a combined contribution of 12.4 percent of earnings. Self-employed persons pay both the employee and employer share for a total 12.4 percent. (Half of this contribution, the employer share, is a deductible business expense for income tax purposes.) Also, higher-income Social Security beneficiaries pay federal income taxes on their benefit income, and these taxes help pay for Social Security. During 2011 and 2012, the premiums that workers pay for Social Security protection were temporarily reduced from 6.2 percent to 4.2 percent. The lost revenue from this “payroll tax holiday”—$103 billion in 2011 and $114 billion in 2012—was made up from the government’s general fund. In 2015 the average worker made $48,099 a year, according to the Social Security Administration. This worker and his or her employer will each pay $2,982 this year. Approximately 6 percent of all workers will earn more than the $127,200 tax cap. Earnings above the cap now account for 18 percent of the aggregate pay of all workers who pay into Social Security. An additional tax on workers’ earnings pays for Medicare hospital insurance. This is a 1.45 percent levy, paid by workers and employers each on all wages, for a total tax of 2.9 percent. Self-employed persons pay 2.9 percent. Examples: Jon Smith makes $50,000 in 2017, and Jane Doe makes $120,000 for the year. Jon pays $3,100 for Social Security (6.2 percent of $50,000) and $725 for Medicare (1.45 percent of $50,000) for a total of $3,825 for the year. His employer pays the same amount. Jane pays $7,886 for Social Security (6.2 percent of the 2017 maximum wage base of $127,200) and $1,740 for Medicare (1.45 percent of $120,000 salary), for a total of $9,626 for 2017. Her employer pays the same. For more information, see:
How can we help you?Stay up-to-date on the latest research & policy updates.Subscribe to our newsletterHow much do Americans pay into Social Security a year?Employers and employees each pay 6.2 percent of wages up to the taxable maximum of $147,000 (in 2022), while the self-employed pay 12.4 percent. In 2021, $980.06 billion (90.1 percent) of total Old-Age and Survivors Insurance and Disability Insurance income came from payroll taxes.
What is the average amount of Social Security a person gets?The average annual Social Security benefit for a worker is nearly $20,000, hardly enough money for most retirees to subsist on. When it comes to saving for retirement, it's important to start as early as you can, whether that's through an employer-sponsored 401(k) or a traditional or Roth IRA.
How much is maxing out Social Security?The maximum benefit depends on the age you retire. For example, if you retire at full retirement age in 2022, your maximum benefit would be $3,345. However, if you retire at age 62 in 2022, your maximum benefit would be $2,364. If you retire at age 70 in 2022, your maximum benefit would be $4,194.
Is Social Security based on highest 30 years?The age you stop working can affect the amount of your Social Security retirement benefits. We base your retirement benefit on your highest 35 years of earnings and the age you start receiving benefits.
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How much does the average person pay into social security over a lifetime
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