Social Security woes outnumber the benefits
By David Shields
WealthMark Advisors, Inc
$100,000. That’s approximately how much a working-class couple in their 40s can expect to lose in Social Security taxes over the course of their lives.
According to Eugene Steuerle, an economist at the Urban Institute, taxpayers are now getting less back in Social Security benefits than they paid into the system. This is the first time in the entitlement program’s nearly 80-year history that such an imbalance is the norm.
Back in 1990 — the good old days — a couple who each had earned an average wage paid around $316,000 in Social Security taxes and, upon retiring, ended up collecting $436,000, an $80,000 raise. A retiring couple in 2010, on the other hand, paid about $600,000 in taxes but will get back only $579,000. With time, the discrepancy will get more pronounced.
As designed, of course, Social Security was never intended to do more than help a retired individual or couple pay the bills, but Steuerle’s findings further diminish its viability as a dependable income stream.
Part of the problem, he says, is that tax rates have risen, whereas benefit amounts haven’t. Younger workers, therefore, are paying much more in order to receive much less.
The problem is exacerbated when you factor in the dreaded double-taxation of Social Security. Right now, 85 percent of affluent retirees’ Social Security income is taxable. There’s speculation that this portion might one day be raised to 100 percent to keep the trust fund above water.
To make matters worse, if President Obama has his way and slashes the Social Security budget, taxpayers will see even less of a benefit to paying into the system — not that they have a choice, of course.
For these reasons and more, it’s imperative that we in the financial industry advise those in their 40s and 50s on how to prepare for a retirement without Social Security benefits. In fact, it might be time to stop referring to them as “benefits” and instead call them “losses.”