Watch CBS News

Social Security: Will you get your money's worth?

When it comes to the question "is Social Security fair?" it turns out that whether you'll get your money's worth from your Social Security benefits depends on the demographic group you belong to throughout your life and your own unique life path. And the "Money's Worth Ratios" prepared by the office of the chief actuary of the Social Security Administration can help you figure that out.

Some people might end up receiving more than their money's worth, while others might receive less. Let's take a look to see how this works.

For various demographic groups, the money's worth analysis calculates the ratio of:

The actuarial value of benefits expected to be received by beneficiaries of that group during their lives divided by the actuarial value of FICA taxes paid during working years.

Gridlocked Congress: Are there real options to reform Social Security? 02:11

A ratio higher than one means the actuarial value of benefits expected to be paid for that demographic group exceeds the actuarial value of the FICA taxes paid. Conversely, a ratio lower than one means the actuarial value of benefits expected to be paid for that demographic group might be lower than the value of taxes paid. For this purpose, actuaries consider Social Security's retirement, disability, survivor and dependent benefits.

Because Social Security's benefits and tax structure have changed over the decades, different generational cohorts, defined as people who people share birth years, will also experience different results from the money's worth calculations.

Here are a few notable trends:

  • Money's worth ratios decline as the year of birth increases. This reflects the fact that Congress expanded Social Security benefits during the 1950s, '60s and '70s to meet the emerging needs of older workers at that time, but it didn't increase taxes proportionately. Then in 1983, Congress reduced benefits for future workers and increased taxes to shore up the program's finances, reducing the money's worth calculations for people retiring after these changes.
  • One-earner married couples have the highest money's worth ratios because Social Security pays additional benefits to spouses who didn't work outside the home (reflecting a value lawmakers have placed on homemaking spouses). Single males have the lowest money's worth ratios. Single females and two-earner couples tend to have roughly the same ratios.
  • Money's worth ratios decline as income increases. Workers with low and very low incomes tend to have ratios higher than one, while medium-income workers tend to have ratios in the approximate neighborhood of one. High-income workers tend to have ratios less than one. This reflects the belief that high-income workers are better able to develop other resources for their retirement security compared to low-income workers.

Of course, your individual experience could vary from the demographic group you're in. If you live a long time, for instance, you might receive more than your money's worth. On the other hand, if you're a single worker who dies before starting benefits, you'll have paid FICA taxes throughout your working life but get nothing in return.

From a purely financial sense, you won't know if you've received your money's worth from Social Security until you finish working and paying FICA taxes, retire, collect your last benefit check and die (but then, will you really care?).

So far, we've narrowly addressed the financial considerations of whether you get your money's worth from Social Security. Taking a broader perspective, you may also perceive value in the taxes you pay to support your parents' or grandparents' retirement because it allows them to live independently.

Some people might also agree that it's desirable to provide a basic level of income for the most vulnerable people in our society, and they're willing to pay taxes to achieve this result.

Looking even more broadly, high-income people who own stocks benefit by the profits companies earn from selling products and services to citizens of all ages and income levels. If poverty is widespread, a robust market for the products and services businesses offer wouldn't exist, and therefore, their stock investments wouldn't perform well. And high-income people have tax breaks that aren't generally applicable for low-income people, such as reduced taxes on capital gains.

When you think about it, the money you pay in FICA taxes is simply part of the deal of being an American citizen. Taking this broadest perspective, you might win a few and lose a few. It's all part of supporting a civilized society.

View CBS News In
CBS News App Open
Chrome Safari Continue
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.