Getting More Than You Paid in with Social Security and Medicare

Is Social Security an entitlement program or simply a government-run style of 401(k)? Do you get more out of Medicare than you put in? Who is benefiting at the expense of whom?

When taken alone, Social Security does not pay out significantly more than you pay in for two earner, average wage household. According to a study put out by the Urban Institute, the average two-earner couple earning $43,500 each per year in 2011 dollars will have put in $826,000 if they are retiring in 2011. This includes a return on investment for their contributions of 2% above inflation. They will receive $721,000 in Social Security benefits over a lifetime. The picture for single average workers is similar: they put in $305,000 and will receive $267,000.

However, when considering married households with one average earner and one earning a low to no wage, the picture shifts. In a one earner couple earning $43,500, they will have put in $305,000 (the same as a single person), yet they would receive $453,000. This is a net gain of $186,000 by simply being married and not earning (or putting in) a penny more. If the secondary earner in the couple earns $19,500, then the couple puts in $443,000 and gets out $476,000. This is only a $23,000 increase in return for an additional $138,000 investment, making a disincentive for a spouse to work for supplemental income. However, in both cases, the couple receives more than they pay in (including interest on capital).

When Medicare is added to the picture, all beneficiaries get more than they paid in. For the average two earner couple retiring in 2011, they will have paid in $119,000 in Medicare taxes ($730,000 for both Medicare and S.S.) and they will receive $357,000 in Medicare benefits ($917,000 for both). Even if one spouse earns a high wage ($69,600) and the other makes an average wage (combined to $113,000), then they will get out $357,000 from Medicare after only putting in $154,000. This benefit would be even higher if the one spouse earned the whole $113,000 and the other spouse stayed at home.

So Social Security is an entitlement for the low earners and the stay-at-home spouses, paid for by higher earners and single people. This amounts to a social program for the redistribution of wealth in retirement, or socialism.

Medicare is more concerning. While on the surface it seems like everyone wins, math simply does not work that way. Medicare is funded in a variety of ways, including employer contributions. In every way, Medicare is an entitlement program. The government is handing out money as it sees fit, not simply managing the investments of its citizens.

Additional Resources:

Urban Institute Social Security/Medicare Study:

The Cato Journal on Social Security:

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