Social Security, Medicare a Bargain for Many

New study tabulates programs’ lifetime taxes and benefits for typical consumers.

By SHARE

Medicare is a big consumer bargain, while Social Security is more likely to be an even trade-off, according to a recent study by the Urban Institute, a Washington think tank. The study looked at different consumer profiles, and compared the amounts of lifetime Social Security and Medicare payroll taxes with the benefits that typical consumers are likely to receive from each program.

[See 10 Key Retirement Ages to Plan For.]

Both programs have progressive structures and provide relatively higher benefit-to-tax ratios for lower income beneficiaries. For Social Security, households with high incomes pay out more in taxes than they are likely to receive in benefits over their lifetimes. People with low incomes and households with only one working spouse come out ahead on Social Security. Everyone comes out ahead on Medicare, but the largest benefits are seen in lower-income households.

The consumer impact of the two programs reflects their differing deficits. Social Security faces a relatively modest long-term funding shortfall. Medicare operates with a huge structural deficit that is widely viewed as unsustainable. Both programs will be included in the proposals to close budget deficits that are expected from Congress this year.

Here are the different scenarios for people who turn 65 in 2011: The calculations assume that everyone who works is employed from the age of 22 to 64, and retires at his or her normal retirement age. Every year, Social Security calculates an average wage for the typical worker. The calculations assume that for every year of their working lives, people receive either that year's average wage, a low wage (45 percent of average), a high wage (160 percent of average), or the maximum wage subject to Social Security taxes (now at $106,800).

Single man earning $44,600 a year (the projected average wage level in 2011): He would come out $66,000 ahead over his lifetime, receiving $430,000 in Social Security and Medicare benefits and paying out $364,000 in taxes for the two programs. On Social Security alone, he would "lose" $44,000, receiving $263,000 in benefits but paying $307,000 in Social Security taxes. For Medicare, he would enjoy a net gain of $110,000, receiving $167,000 in lifetime benefits and paying only $57,000 in Medicare taxes.

[See 2011 Tax Outlook for Seniors.]

Single woman earning $44,600 a year: She would come out $116,000 ahead over her lifetime, receiving $480,000 in Social Security and Medicare benefits and paying out $364,000 in taxes for the two programs. On Social Security alone, she would lose $15,000, receiving $292,000 in benefits but paying $307,000 in Social Security taxes. For Medicare, she would enjoy a net gain of $131,000, receiving $188,000 in lifetime benefits and paying only $57,000 in Medicare taxes.

One-earner couple earning $44,600 a year : They would come out $441,000 ahead over their lifetimes, receiving $805,000 in Social Security and Medicare benefits and paying out $364,000 in taxes for the two programs. On Social Security alone, they would enjoy a $143,000 surplus, receiving $450,000 in benefits while paying $307,000 in Social Security taxes. For Medicare, they would enjoy a net gain of $298,000, receiving $355,000 in lifetime benefits and paying only $57,000 in Medicare taxes.

Two-earner couple, with one spouse earning $44,100 a year and the second earning $20,100 (the projected low wage in 2011): They would come out $299,000 ahead over their lifetimes, receiving $827,000 in Social Security and Medicare benefits and paying out $528,000 in taxes for the two programs. On Social Security alone, they would enjoy a $27,000 surplus, receiving $472,000 in benefits while paying $445,000 in Social Security taxes. For Medicare, they would enjoy a net gain of $272,000, receiving $355,000 in lifetime benefits and paying only $83,000 in Medicare taxes.

[See Senior Safety Nets at Risk in 2011.]

Two-earner couple, with both spouses earning $44,600 a year: They would come out $182,000 ahead over their lifetimes, receiving $910,000 in Social Security and Medicare benefits and paying out $728,000 in taxes for the two programs. On Social Security alone, they would lose $59,000, receiving $555,000 in benefits but paying $614,000 in Social Security taxes. For Medicare, they would enjoy a net gain of $241,000, receiving $355,000 in lifetime benefits and paying only $114,000 in Medicare taxes.

Two-earner couple, with one spouse earning $71,500 a year (the projected high wage in 2011) and the second earning $44,600: They would come out $88,000 ahead over their lifetimes, receiving $1,020,000 in Social Security and Medicare benefits and paying out $932,000 in taxes for the two programs. On Social Security alone, they would lose $120,000, receiving $665,000 in benefits but paying $785,000 in Social Security taxes. For Medicare, they would enjoy a net gain of $208,000, receiving $355,000 in lifetime benefits and paying $147,000 in Medicare taxes.

Two-earner couple, with one spouse earning $106,800 a year (the maximum taxable wage in 2011) and the second earning $71,500: They would come out $76,000 behind over their lifetimes, receiving $1,107,000 in Social Security and Medicare benefits but paying out $1,183,000 in taxes for the two programs. On Social Security alone, they would lose $216,000, receiving $752,000 in benefits but paying $968,000 in Social Security taxes. For Medicare, they would enjoy a net gain of $140,000, receiving $355,000 in lifetime benefits and paying $215,000 in Medicare taxes.

Twitter: @PhilMoeller