Baby boomers retiring this decade could receive substantially more in Social Security benefits than they and their employers paid in payroll taxes, according to a new analysis from the Committee for a Responsible Federal Budget.
CRFB published the analysis Wednesday as the Social Security system faces a projected trust fund shortfall within six years. The group said the debate over reform is being complicated by the belief that Social Security simply returns the money workers paid into the program.
Benefits Can Outpace Taxes
The Congressional Budget Office found that people born in the 1960s, many of whom are approaching retirement, are scheduled to receive benefits equal to about 133% of the payroll taxes paid by them and their employers, measured on a present-value basis.
That means they are projected to receive their contributions, plus interest, and another 33 cents for every $1 paid in combined taxes. When only workers’ own payroll-tax contributions are counted, scheduled benefits are about 265% as large.
The difference can be even larger for lower-income retirees. CRFB estimates scheduled benefits at about 266% of combined taxes for the lowest income quintile, compared with 147% for the middle quintile. For the highest-income quintile, benefits are projected to be roughly equal to combined taxes, although about twice the workers’ own contributions.
A median-wage worker retiring in 2027 could receive about $730,000 in scheduled lifetime benefits while paying less than $200,000 in combined worker and employer taxes, CRFB said. That means benefits could be about 3.7 times total taxes paid and 7.4 times the worker’s direct contributions.
Social Security Faces A Funding Gap
CRFB stressed that Social Security is not a personal savings account. It is a pay-as-you-go system, where taxes collected from current workers help finance benefits for current retirees.
The group’s analysis says the program is projected to cost about 135% of the revenue it collects over the next 75 years. Without changes, the Social Security retirement trust fund, known as the Old-Age and Survivors Insurance (OASI) Trust Fund, is projected to run out of reserves in the fourth quarter of 2032. At that point, continuing program income would cover about 78% of scheduled benefits, implying an approximately 22% reduction.
The political debate over fixing the program remains unsettled. Rep. John Larson (D-Conn.)’s recent primary loss removed a longtime House advocate for expanding Social Security from the next Congress, while competing proposals include higher payroll taxes and benefit changes.
Another analysis of potential fixes found a major tradeoff between economic growth and the burden placed on future retirees, with some benefit-cut approaches producing stronger long-term economic gains than tax-heavy plans.
CRFB said the solution does not necessarily require indiscriminate benefit cuts, but argued that lawmakers need to change taxes, benefits or both before the trust fund problem becomes an immediate crisis.
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