Social Security & Medicare Lifetime Benefits

By :: November 5th, 2012

How much will you pay in Social Security and Medicare taxes over your lifetime? And how much can you expect to get back in benefits? It depends on whether you’re married, when you retire, and how much you’ve earned over a lifetime.

I recently published with Caleb Quakenbush “Social Security and Medicare Taxes and Benefits Over a Lifetime: 2012 Update” which updates previous estimates of the lifetime value of Social Security and Medicare benefits and taxes for typical workers in different generations at various earning levels based on new estimates of the Social Security Actuary. The “lifetime value of taxes” is based upon the value of accumulated taxes, as if those taxes were put into an account that earned a 2 percent real rate of return (that is, 2 percent plus inflation). The “lifetime value of benefits” represents the amount needed in an account (also earning a 2 percent real interest rate) to pay for those benefits. Values assume a 2 percent real discount rate and all amounts are presented in constant 2012 dollars.

While no major changes in Social Security or Medicare law have occurred since the last update, these estimates reflect alternative assumptions provided by the Center for Medicare and Medicaid Services (CMS) actuaries that lawmakers will cancel a draconian scheduled cut in Medicare payment rates to physicians and other scheduled spending reductions. The result is significantly higher projected lifetime Medicare benefits than current law assumptions would indicate.

Below is a sample table from the brief, for a two-earner couple both earning Social Security’s average wage measure. This set of calculations assumes that workers retire at age 65.

More background information on these calculations can be found at:


  1. Michael Bindner  ::  2:04 pm on November 5th, 2012:

    Assuming inflation has been factored out, that shows that the economy is grown and that workers benefit from that growth over and above the 2% average predicted by the trustees. That is actually good news. If we need more, of course, we can switch from payroll tax financing to consumption tax funding, with receipt visibility and border adjustment depending upon whether the tax has offsets for employer provided retirement accounts and retiree/long term health care or not.

  2. Brian Dell  ::  3:20 pm on November 6th, 2012:

    I understand why calculating the present value of lifetime taxes means considering the opportunity cost of not otherwise being able to invest those payments in an account earning a positive real return, but why don’t the present value of lifetime benefits just accept the current return being realized by the government? I think the benefits are being overvalued here by not recognizing the fact that social security in particular is primarily a pay-as-you-go system as opposed to a retirement fund invested in a real asset. If the social security fund were, in fact, truly generating a 2% real return the payroll taxes supporting it would be much more bearable for the people retiring in 2035.

    I also doubt that the people retiring in 2035 are going to see lifetime Medicare benefits that are more than 70% more valuable in 2012 dollars than for people who retired in 2010. Budget pressures are going to force some sort of rationing by 2040.

  3. Brian Dell  ::  4:52 pm on November 6th, 2012:

    To date, the TPC has considered the impact of policy on various income levels critical to assessing the fairness of the policy. I accordingly think there should be a distributional analysis that calculates “in” versus “out” based on income level in addition to “generation.”

    Such an analysis should also consider the President’s proposal to uncap Social Security payroll taxes. This is not an obsolete proposal, since it is on and Obama called attention to it on September 21 of this year.

    As for whether this proposal would ever get through Congress, the TPC has spent a great deal of timing looking at Romney’s 20% across-the-board rate cut without making any allowance that I’m aware of for the possibility that Congress would scale that back to a lower number. The facts are that there is no bill in Congress calling for a 20% Romney-style cut whereas there IS a bill (sponsored by Senator Sanders and supported by McCaskill, Boxer, et al) calling for uncapping the applicability of Social Security payroll taxes as proposed by Obama (with the creation of a “donut hole” such that taxes are not applied to $110K to $250K).

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