Understanding Your Return on Investment in Social Security and Medicare - GoBankingRates/Tax Policy Center

Many folks who have spent decades in the workforce, paying the Federal Income Contributions Tax (FICA) all those years, wonder if they’ll live long enough to fully recoup those dollars paid into the system. It’s a concern we hear often from members of the public who contact our AMAC Foundation Social Security Advisory Service seeking assistance as they navigate the complexities of this massive senior safety net. In a post on nasdaq.com by Vance Cariaga writing for GOBankingRates, this concern is put to rest via a recap of recent Tax Policy Center (TPC) findings indicating “You’ll likely receive a lot more in benefits than you paid in through taxes,” a fact that is also one of the causes of the impending trust fund depletion dilemma faced by both Social Security and Medicare.

Cariaga’s analysis is based on the TPC studies explaining the reality that over a lifetime, a typical worker’s cumulative tax payments tend to be substantially lower than the benefit payments they receive. One hypothetical scenario described in the post compares the tax payments by a couple with one average earner and one low-wage earner, illustrating that their eventual benefit would be more than 80% higher than the amount contributed in payroll taxes. Cariaga goes on to describe how the now-declining worker-to-beneficiary ratio has supported this mathematical reality, and how the Baby Boomer cohort’s steady departure from the workforce is changing the picture dramatically.

Understanding the long-term effects of this return-on-investment picture should lead policymakers to reflect on how scaling back benefit growth over the long haul, coupled with measures to increase program revenue and/or stretch the length of work life, would help balance the Social Security and Medicare programs’ financial picture. Read the Cariaga post here, and for additional data on the Tax Policy Center’s research, click here.

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