This is a short follow up post to Mister Mix’s earlier post on Mike Johnson (and all Republicans) wanting to cut “entitlements” like Social Security, Medicare and Medicaid.
Today I’ll focus on Social Security. We’ll tackle Medicare and Medicaid in the near future.
Danger Will Robinson - it involves math.
Let’s look at a hypothetical worker we’ll call Bob the Builder. This is Bob’s simplified profile:
Born in 1960
Retiring next year (2027) at full Social Security retirement age of 67
Made $75,000 every year for 45 years (poor Bob started strong but never got a raise)
Paid his 6.2% payroll tax share into Social Security every year ($4,650 per year)
Based on average life expectancy in the U.S., Bob will likely live for another 16 years until age 83
Bob could have earned an average of 5% annually on the money he paid in payroll taxes every year (and which compounded every year as well) if he had invested it himself
Over 45 years, Bob would have paid $209,250 into Social Security (of course, Bob’s employer - the world-famous Building Company which builds, well, things that need to be built - would have matched Bob’s contribution and paid the same amount into Social Security as well).
If Bob had invested that total of $209,250 himself ($4,650 every year for 45 years and earned 5% interest every year on a compounded basis), Bob would have a nest egg of approx. $742,000 today.
Based on his lifetime earnings and his decision to start taking Social Security payouts at full retirement age next year, Bob would likely receive around $2,700-$2,800 per month from Social Security. Let’s split the difference and use $2,750/month.
With a life expectancy of 16 years (and assuming annual inflation on Social Security benefits of 3%), Bob’s total Social Security benefit at his death would amount to approx. $665,000.
SUMMARY
Question: Did Bob receive an undeserved “entitlement”? Is Social Security a gift from Uncle Sam using other taxpayer’s money?
Answer: No! Bob could have ended up with $742,000 if he had invested his portion of Social Security payroll taxes himself, but he only received $665,000 from Social Security before the law of averages took him to that giant construction site in the sky.
Bob earned his Social Security benefits!
Bob actually gave up some potential higher returns (that would have involved higher risk) to fund his social insurance policy that guaranteed he would receive, in essence, a pension from the U.S. in return for his hard years of work contributing to our nation’s economy.
MESSAGING
Every worker who receives Social Security benefits has contributed into the system and actually earned the benefits they receive when they retire. Republicans want to take that away from all of us. Republicans are lying to you. Don’t let them steal YOUR money!
DISCLAIMER
The example used above is extremely simplified and for illustration purposes only. Bob probably wouldn’t have started out earning $75K in 1982 and therefore would have contributed less in payroll taxes, lowering his eventual nest egg below $742K. Of course, on the flip side, Bob would also have received annual raises since he is such dedicated and productive worker.
Dolly Parton - “9 To 5”
