Wednesday, August 01, 2012

Are many Social Security beneficiaries drawing more benefits that they actuarially "deserve"?


The double talk on Social Security income as an “entitlement” continues, in the Commentary section of the July 31 Washington Times, “Are we all dependents now: Growth of entitlements attacks self-reliance”, by Rob Schwarzwalder, link here . 

He writes, “if you work 40 years and pay into the Social Security system the entire time, you’re only getting back what you put in, right? It’s called an ‘entitlement’ for a reason.”

Later he notes criticizing food stamps but feeling “guiltless about taking Social Secuirty – even though what they take out of that shell game of a system far exceeds what they ever put into it?”

Is what the columnist says actuarially true?  Social Security benefits are calculated based on total contributions over covered quarters (including those of a legal spouse, and including employer FICA contributions).

If you start benefits early (at 62) you get less for the rest of your life.  The break even point for me is 77.  I have about 30 years of covered employment (18 months in the Navy Department in the early 70s was not included).

Edward Lotterman of Chanarambie Consulting has a piece, written in 2009, about the actuarial fairness. He does provide some discussion of what the premiums would be for private "annuities certain" to provide the same benefits (especially with spousal survivorship). Apparently many older retirees are making a killing, given the very low FICA taxes when they started working. The link ("Real World Economics") is here

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