paying for “entitlements”, by el gato malo

The average Social Security tax take is far less than the average benefit pay out. From el gato malo at boriquagato.com:

after this recent piece about the impending failure of social security and medicare/medicaid that threatens to take down the whole of the federal budget some questions about the entitlement to take out because one payed in were raised.

this is, on the surface, something of a reasonable objection. however, as one digs into such a claim, it rapidly becomes apparent that such ideas cannot be supported because this was not a savings system, it was a ponzi system and that which was paid in was woefully insufficient to support that which winds up being taken out and therefore as the number claiming benefits inexorably rises due to longer lives and we therefore see fewer payors per recipient as the average years of benefits rise from 0 to 12 and change, the system cannot possibly support itself.

but it could have had it not been designed to fail.

let’s look.

first, the data here (from FRED, the st louis fed tool) only went back to 1974, but this, as it turns out, works well for this analysis as someone who went to work then at, say, 20 or 21 would have been born in 1953 or 1954 and thus be pretty much dead center of the boomer generation whose retirement is placing such stress on the system.

i took the median US salary by year and i multiplied it by the fully loaded FICA rate per year (individual plus employer contribution) which, it is worth noting, used to be much lower. it was only 7.9% in 1974 vs 15.3% today. from this we can calculate annual FICA payments into the system and aggregate them over a 45 year career to 65 which would end in 2018.

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