Social Security: Most Americans Now Pay More in Taxes Than They Receive in Benefits

Starting with the retirement class of 2005, the average American is likely to pay more into the Social Security system than he or she later takes out of it via retirement benefits.

Jul 20, 2014 at 9:11AM


I have some bad news. Starting less than five years ago, the average American now pays more in Social Security taxes than he or she is set to receive in benefits. And to make matters worse, this deficit is only getting bigger.

Check out the following chart, which shows the difference between what a typical retiree receives in total lifetime Social Security benefits minus the total amount of Social Security taxes the retiree paid during his or her working years. It's organized based on the year in which a person turns 65.


The average American who turned 65 in or before 2005 was likely to get more out of the system than he or she paid into it. This trend peaked for the retirement class of 1980, as the typical single male or female who reached full retirement age that year will draw an estimated $139,500 more in total benefits than he or she paid in lifetime Social Security taxes.

Starting with the retirement class of 2010, however, this relationship inverted. And it appears to have done so permanently.

From here on out, an unmarried American taxpayer earning an average income will pay more into the system than he or she draws out of it via retirement benefits. According to the Urban Institute's predictions, this trend will peak in 2030, when an average-earning individual will pay $55,000 more than he or she receives.

Taxpayers won't suffer equally
Not all segments of the population face the same dismal reality.

Single men are the hardest hit by this trend. It's estimated that the typical man turning 65 in 2030 will pay $70,000 more in Social Security taxes than he will take out in benefits.

By comparison, thanks to differences in life expectancy, a similarly situated woman will face a deficit of only $40,000.


Total Social Security Taxes Paid (Retirement Class of 2030)

Total Social Security Benefits Received (Retirement Class of 2030)

Difference (Taxes Paid Minus Benefits Received)

Single male




Single female




Average one-earner couple




Average two-earner couple




Source: Urban Institute, Social Security and Medicare Taxes and Benefits over a Lifetime (2013 update)

The best off from this perspective are couples with a single breadwinner. A couple that falls under this category (and turns 65 in 2030) will pay a total of $411,000 in Social Security taxes over its lifetime but receive $570,000 in benefits.

The reason is simple: Even though there's only one taxpayer, the spouse is nevertheless entitled to his or her own spousal share, which maxes out at 50% of the wage earner's primary insurance amount

Is this because Social Security is running out of money?
The growing deficit between what you pay and receive isn't because the Social Security system is running out of money. Given that it's a pay-as-you-go system, there will always be money coming in.

The issue stems rather from the fact that the retirement age is continuously increasing. Since the Social Security system's inception in the 1930s, the full retirement age has gradually increased from 65, to 66, and now to 67 for people born in 1960 or later.


The result is twofold. On one hand, by encouraging people to delay retirement, it increases the system's tax roll. And on the other, because retirement is delayed, the aggregate value of benefits paid is reduced.

The bottom line is that future generations will have to do more with the portion of their disposable income that isn't absorbed into the system. That means saving more over the course of their working years. It also means investing early and often, as time and the law of compounding returns are the surest ways to offset dismal trends like these.

How to get even more income during retirement
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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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