Yesterday, the AP published an article with this headline: “Social Security not deal it once was for workers.” Perhaps it’s true that Social Security is not as good of a deal as it once was – but it’s still a pretty damn good deal.
As a young person in the Millennial generation, my take on Social Security is perhaps a bit different than that of my peers. I know that even though I’m decades from retirement, Social Security is covering me right now. Social Security will provide benefits should I become severely injured or disabled, and my friends who have children can count on it providing family benefits in the event of their injury or death.
My girlfriend – whose father died when she was a child – received benefits that helped her family pay the bills. My grandparents, who have have small pensions and minimal retirement savings, rely on Social Security for a healthy chunk of their day-to-day income. Social Security also guarantees my parents economic freedom – and the guarantee they won’t have to support their parents in retirement. This freedom helped them send me to college – and it’s one that I now fully understand.
Social Security isn’t just a good deal – it’s a great deal. Unfortunately, articles like this have misled many in my generation into thinking Social Security will not be there for us. But the reality is, there’s only one way that will happen – if we allow it to.
Social Security has been around for 77 years, and unlike any 401K – it’s guaranteed. So when the retirement savings and home values of my parents and millions of other Americans plummeted in 2008, Social Security never missed a payment or cut benefits. Social Security is the safest investment in the world.
I also happen to know one important detail the author of this article omitted. Social Security taxes are paid only on a workers first $110,100 of income. So while a worker earning $40,000 pays a tax rate of 6.2%, a worker earning $500,000 pays a tax rate of just over 1%. If the cap of $110,100 were eliminated, and high-earning Americans paid the same tax rate as everyone else, all this talk we hear that we must “cut Social Security now to prevent future cuts” could finally come to an end.
With a recession occurring nearly every decade since the early 1900s, our Social Security system recognizes the contributions of American workers who have worked hard and played by the rules. For American workers of every age, Social Security provides freedom, security and independence – and I’m happy to support it.
One thought on “For young workers, Social Security is still the best deal around”
The Aug. 6 “CloseUp” article “Social Security isn’t the deal it once
was” asserts that Social Security is not a good investment. I disagree.
The study by the Urban Institute that the article cites uses erroneous
assumptions and minimizes the value of Social Security protection while
overstating the FICA taxes average workers pay.
I went back to the original report and referenced a single (male) wage
earner retiring at age 65 in 2010 with average earnings of about
$43,000. The Urban Institute Report shows that wage earner paid
$294,000 in lifetime Social Security taxes. Using data from
the Social Security’s website, I calculated that a wage earner retiring
in 2010 earning maximum covered earnings under Social Security paid
lifetime taxes of $129,567—-less than half of what the Urban Institute
Study shows. I could not re-create the “average earnings” figure used
by the Urban Institute, but clearly the lifetime taxes for an average
worker would be far less.
The Urban Institute study is flawed because they made erroneous
1. They assumed FICA taxes would be put into an account earning 2%
interest plus inflation. So their figures significantly overstate the
taxes. This methodology is not standard or universally accepted, nor is
there any real data showing that taxpayers would ever get those earnings
even if they choose to save the money. Current assumptions on tax cuts
are that money is spent, not saved.
2. They adjusted taxes for current dollars, inflating the actual taxes
3. The examples they highlighted ignore that Social Security also
provides protection similar to life insurance for dependent children and
mothers, for widows, and for surviving children and spouses of deceased
4. Although it is hard to quantify the value of Social Security’s “life
insurance” protection, the study overlooked that social security
protection carries with it a value equivalent to a life insurance policy
of $400,000 and a disability policy of $350,000.
The bottom line is the Urban Institute’s Study is flawed and deceptive.
It overstates taxes paid by using a formula that overstates tax
liability by compounding hypothetical tax savings by 2% plus inflation.
So, by cooking the books, the study concludes that an average wage
earner paid $294,000 in taxes when a calculation using Social Security’s
own data shows the maximum possible tax by a high earning wage earner is
$129,567 and the tax paid by an average worker is far less than that.