Almost all American workers paid 7.65 percent of their taxable income into the Social Security and Medicare trust funds in 2010, up to $106,800 annually for Social Security. That amount will temporarily drop to 5.65 percent in 2011. Employers pay a matching 7.65 percent for each worker. And self-employed workers must contribute 13.3 percent of their income to the entitlement programs in 2011. Many people wonder if they will get back at least the amount they contributed in retirement.
The answer largely depends on when you retire and how much you've earned over your lifetime. Consider a single man who earns the average wage throughout his career ($43,100 in 2010 dollars), works every year from age 22 to 64, and then retires at age 65 in 2010. Over his lifetime he has paid $345,000 into the system. But he is likely to get back $72,000 more than that, or $417,000 in Social Security and Medicare payouts, according to recent Urban Institute calculations. A single women with the same work and tax history will come out even further ahead due to her longer life expectancy, likely netting $464,000 in lifetime benefits, which is $192,000 more than she paid into the system. These amounts are in constant 2010 dollars and assume a 2 percent real interest rate.
Medicare benefits are the main reason most workers are coming out ahead. A male earning the average wage throughout his working life who retires in 2010 paid $55,000 into the Medicare trust fund, but is likely to receive $161,000 worth of Medicare benefits, the Urban Institute found. In contrast, he pays $290,000 in Social Security taxes throughout his career and collects $256,000 in retirement payments.
Married couples generally benefit the most from Social Security and Medicare payments, especially when one spouse earns significantly more than the other. A two-earner couple with one spouse earning the average wage each year ($43,100 in 2010) and the other spouse earning 45 percent of the average wage annually ($19,400 in 2010) who both retire in 2010 will get back $300,000 more in retirement benefits than they paid into the system. A couple with this earnings history would pay $500,000 in taxes over their lifetime, but get back $800,000 in benefits.
When both members of the couple earn the same average wage over their working life, they get back $192,000 more than their tax contributions. In this case the spouses paid $690,000 in Social Security and Medicare taxes and are likely to get $882,000 worth of benefits in retirement.
The picture is slightly less rosy, but still a good deal, for higher income couples. If one spouse earns 160 percent of the average wage each year ($68,900 in 2010), the other spouse earns the average wage ($43,100 in 2010) annually, and they retire together at age 65 in 2010, they are likely to get back $107,000 more in benefits than they paid in taxes. This couple has paid $882,000 into Social Security and Medicare and can expect to receive $988,000 worth of benefits. This surplus of benefits is again mostly due to Medicare. A couple with this earnings history paid $140,000 in Medicare taxes over their working life, but is likely to collect $343,000 worth of Medicare services.