Do You Come Out Ahead On Social Security, Medicare?

What a ridiculas question? And one that reinforces the myth that Social Security and Medicare taxes have any benefit relationship to the individual paying them.

Why not ask the same question of road taxes, or school taxes or unemployment taxes? Hey, just plain ordinary income taxes for that matter.

Who wants to “come out ahead” by collecting more from their health insurance than they paid in premiums?

During the working years, you pay a lot of taxes for Social Security and Medicare, but you later receive a lot of benefits. Over a lifetime, do your benefits equal or exceed the taxes? Your Social Security and Medicare taxes don’t go into separate accounts in your name the way 401(k) contributions are. That makes it harder to tell whether you receive more or less in benefits than you paid in taxes during a lifetime. Also, you can’t really know until after you pass away and the amount of benefits actually received is known.

Source: Do You Come Out Ahead On Social Security, Medicare?

Overall we must come out ahead regarding taxes otherwise there wouldn’t be massive deficits and the key trust funds wouldn’t be running out of money.

If you are really curious, go to your Social Security account on mySocialSecurity and there you can see the total Social Security and Medicare taxes you and your employer paid over your lifetime. Compare those amounts with your benefits.

And please don’t say something silly like some people don’t live to collect benefits. Some people paying school taxes don’t have children, some people don’t have a car either. That’s life. If everyone was always a winner, nothing would be affordable.

4 comments

  1. Obviously, the question has to be asked whether there is any return on tax paid into a program to determine whether it is worth supporting or not. Vote it out if it’s not working. Whether you can personally come out ahead is an exercise in thinking on a slow day or around the bar before quitting time.
    The retirement program does favor certain groups over others such as a man with a stay-at-home wife comes out better than a 2 earner couple all things considered. Better educated people tend to live longer than lesser educated so retirement benefits can last longer. Things like that can affect who gets what. As for Medicare, the position that nobody should want to collect medical costs is a valid one. Better to die at 101 without seeing a doctor is the ideal. All in all, I don’t see any way out of the deal and it’s pretty fair to most so I won’t be beating the drum to so away with it.

    Liked by 1 person

  2. The question was: Do You Come Out Ahead on Social Security, Medicare? You state: “Overall we must come out ahead regarding taxes otherwise there wouldn’t be massive deficits and the key trust funds wouldn’t be running out of money.” The answer to the first is no! The answer to the second, if you define “we” as including not just beneficiaries but also everyone who is and will someday pay FICA, FICA-Med and income taxes, regrettably, no!

    And, if you only include current beneficiaries in the “we”, my view is that, simply: You ≠ We!

    You are right to point out the difference between insurance and investments.

    I agree wholeheartedly about the “prepayment” of FICA-Med for hospital insurance – I hope my contributions and those of my employer plus all of the foregone earnings on those contributions, all go to benefit someone else, that the coverage itself has its own value. However, that doesn’t make it a good buy. There are a lot of health insurance policies that suck. I’m covered under Medicare Part A today. Yet I am still paying FICA-Med taxes that cover the majority of the premium I would pay if I had to contribute for the coverage. Why should I overpay for the coverage – especially since 1994, when they removed the wage cap on FICA-Med, and since 2012 when they added an income surcharge?

    For Part B and Part D, it is worse. I am paying through general revenues (income taxes) a disproportionate amount of the cost of that coverage. For each and every one of the last 50+ years, I have been paying income taxes while an ever greater portion of Americans skip out (57% of all American households paid no income taxes in 2021 – https://www.cnbc.com/2022/03/25/57percent-of-us-households-paid-no-federal-income-tax-in-2021-study.html ). And, I get to pay Medicare Part B and Part D premiums, and income taxes as I am still employed. Should I become single right now, I would also get nicked by IRMAA. In other words, I pay MORE than the full cost of Medicare Part B and D and even if I found new employment with medical coverage and waived Part B and Part D, I would still be paying in general revenue income taxes more than the full cost of Medicare Part B and D.

    But, the worst of all is social security (OASDI). That’s because the taxes are a flat percentage but benefits are highly progressive due to the bend points in the calculation. Someone who has paid in for 50+ years, well, they only use 35 in the calculation. My FICA-taxes and my employer’s FICA taxes, plus estimated 6% per year investment earnings, would purchase, even at today’s very low interest/purchase rates, a 100% contingent annuity, indexed 3% per year, that would have an initial nominal dollar value that is 50% higher than the combined amount of my benefit and my spouse’s Social Security benefit, ignoring the dramatically lower level of survivor benefits.

    Yes, maybe we (the Baby Boomers) come out ahead, as a group, by shifting the cost to younger Americans, including those too young to vote, and those yet unborn. But, the worst part is that this will continue to be a bad buy so long as members of Congress can add to their campaign “funds” by assessing ever increasing taxes to future generations as a means to buy votes today.

    These may be entitlements, but they are also embarrassments!

    Liked by 1 person

    1. I have always thought your inclusion of lost investment earnings on FICA taxes to be flawed for several reasons. Mainly because average people would never invest the money and second because SS is way more than retirement income after working a lifetime.

      Liked by 1 person

      1. I agree. But the you here is me, or maybe you, not most people, and certainly not “we”.

        Even though most people wouldn’t invest, that doesn’t change the math.

        The costs to “purchase” or “fund” these entitlements are the same, whether the worker invests the contributions or not.

        Instead of driving a hand-me-down from a parent at graduation, that nice used car some kid buys in 2023 for $20,000 at age 22, cost that person, at age 67, earning 6%, assuming Roth after tax contributions, $275,292 in foregone TAX FREE retirement assets.

        The numbers don’t lie. After working a lifetime, for me, and probably for you as well, Social Security provides an nice income and a survivor benefit – but at levels that are far, far less than what we could have obtained by investing our contributions and those of our employer and using them to purchase an annuity.

        Liked by 1 person

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