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Social Security and Medicare: Do you get back what you pay in?

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It’s true that workers fork over Social Security and Medicare taxes every payday. But under current law, over their lifetimes most Americans will get back substantially more from these programs then they’ve paid in, even after accounting for inflation and adjusting for interest you might have earned if you’d kept the money.

That’s primarily due to the rising value of projected Medicare health benefits. Social Security is a different story. In recent years the raising of the Social Security retirement age, plus other tweaks, have made the big retirement income entitlement less generous. New retirees won’t get back quite as much income support as they’ve contributed in Social Security taxes.

However, individual tax/benefit ratios for both programs are highly variable, depending on lifetime earnings, longevity, marital status, and health conditions.

Got all that? We weren’t kidding when we said it was “complicated.”

Numbers might better illustrate these points. At the Urban Institute, C. Eugene Steuerle and Caleb Quakenbush have been studying these issues for some time. According to their updated 2012 figures, a single male earning the average wage who retired in 2010 will receive total lifetime Social Security and Medicare benefits worth $457,000, following total lifetime tax contributions of $361,000. So he’ll be $96,000 in the black.

Such a person who retires in 2020 would be $109,000 in the black. A 2030 retiree would get back $156,000 more than he put in. So, as things stand at the moment, retirees will get increasingly generous transfer payments from working taxpayers as the decades roll by.

The trend line is even better for a two-earner average-wage couple. If they retired in 2010, they’ll get back $244,000 more in benefits than they contributed in taxes. Such a couple who retires in 2030 would be $379,000 to the good.

But again – maybe we can’t emphasize this enough – the apparent largesse on the part of Uncle Sam is largely a result of the rising cost of Medicare, which in turn is driven by health-care cost inflation.

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