Based on a study by the Urban Institute, AP writer Stephen Ohlemacher has announced a surprise for couples who started collecting their Social Security last year: They won’t be getting all their money back. In fact, under the assumptions by the think tank, they won’t even come close.
Ohlemacher said that a couple who retired after both spouses earned average wages (each earning $43,500 annually) and paid Social Security taxes of nearly $600,000 over their working years, will receive only $556,000 in benefits if they live out their normal life expectancies. That’s a shortfall of $42,000. And if they happen to die sooner, the difference will be larger.
But buried in the Urban Institute’s study is this basic assumption: that the retiring couple could have earned two percent after inflation on those taxes if they had saved the money outside of Social Security. Despite the poor returns on investments over the last decade, real returns on capital over the past 40 years have approached six percent a year, which puts today’s value of their $600,000 paid in taxes at well over $1 million. Put another way: The couple who retired last year is enjoying a much lower standard of living than they would have if they hadn’t been forced to pay into Social Security.
And this is just as it was designed: Social Security is a wealth transfer system that was flawed from the very beginning.
But initial beneficiaries, such as Ida May Fuller, made out handsomely. Ida May was the first beneficiary of Social Security, receiving her first monthly check in the amount of $22.54, on January 1, 1940. Prior to her retirement she worked as a legal secretary during which time her total contributions to Social Security were $24.75. So she nearly broke even the first month.
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