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Have today’s seniors already paid for their Social Security and Medicare benefits? Not really!

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Social Security and Medicare have been around for generations now, but lots of Americans — especially the beneficiaries — don’t understand how these programs actually work.

This brings to mind my ill-fated stint as a talk-radio host in the 1990s. On occasion, just for sport, I would get elderly listeners riled up when I said that most of them were living on other people’s money — on welfare, as it were.

At the time, Social Security beneficiaries who had been on the program for more than seven years had already used up all the money they had paid into it during their working years, even if you figured a reasonable rate of interest into the equation.

(In retrospect, perhaps that’s why I ended up getting fired for low ratings. Talk radio listenership is skewed toward older folks, and I probably drove away more than a few listeners with my rhetoric about entitlement programs.)

The same kind of blowback I got from radio listeners back in the day has been experienced of late by Catherine Rampell of the Washington Post for a recent column she wrote.

Her response, in part, is HERE:

Yes, seniors paid into Social Security and Medicare during the years they worked, if they worked. But they generally receive much more out of the entitlement system than they paid into it…

[L]et’s consider the average worker who turned 65 in 2010. Generally speaking, the people in this cohort will, more or less, break even on Social Security…Earlier generations made out like bandits; for example, members of an average one-earner couple who turned 65 in 1990 receive twice as much in Social Security benefits as they paid in taxes.

Medicare, on the other hand, is pretty much a steal no matter when you turned 65.

For Americans who turned 65 in 2010, Medicare benefits will typically amount to two to six times what beneficiaries had paid into the system, depending on their marital and work histories. For example, an average-wage, two-income couple who turned 65 in 2010 paid today’s equivalent of $123,000 into the Medicare system during their working years. They will receive about $385,000 in Medicare benefits over their decades of dotage, even after subtracting out the cost of premiums. For a similar couple that retired 20 years earlier, the comparable numbers were $43,000 paid in vs. $227,000 received. A decent return, no?

It boils down to this: Despite all the “we already paid for it” rhetoric popular among seniors, seniors did not pre-pay for their entitlements. If anything, they paid for their parents’ entitlements, which were more modest than the benefits today’s retirees receive.

 

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