By Paula Aven Gladych
The later you were born, the more you will pay in payroll taxes for Medicare
and Social Security benefits, according to new data from the Congressional Budget Office.
A major reason for that is longevity. As people live longer, they end up paying more for health care and because they spend more time in the workforce, they pay more in Social Security taxes and receive more in benefits.
The CBO projected that each successive generation—depending on when they were born—will pay more in lifetime payroll taxes and receive more in lifetime Medicare benefits. Over their lifetime, beneficiaries born in the 1940s would, on average, receive about $160,000 in benefits, net of premiums paid, and pay about $45,000 in payroll taxes. Those born in the 1950s would receive about $205,000 in benefits and pay $60,000 in payroll taxes. Those born in the 1960s would receive an average of $270,000 in benefits and pay about $65,000 in payroll taxes.
For Social Security
, CBO estimated real lifetime benefits and payroll taxes for various birth cohorts as the present value, discounted to the year in which a beneficiary turns 62, of all benefits that an individual receives from Social Security and all payroll taxes paid to the program.
Those payroll taxes are typically 12.4 percent of earnings and only earnings up to a maximum annual amount of $113,700 in 2013 are subject to the payroll tax.
Under these assumptions, beneficiaries born in the 1940s would, on average, receive about $190,000 in benefits and pay about $205,000 in payroll taxes. Those born in the 1960s would receive $240,000 in benefits and pay about $245,000 in payroll taxes and those born in the 1980s would receive $310,000 in benefits and pay $260,000 in payroll taxes.
For workers born between the 1940s and 1980s, lifetime payroll taxes would be roughly equal to lifetime benefits. But benefits for earlier generations were considerably larger than their payroll taxes. It’s that historical imbalance that contributes to the Social Security
system’s ongoing financial shortfall, the CBO found.
Originally published on BenefitsPro.com