To find the dividing line between net gainers and losers, we created a projection assuming an individual with a salary equaling the top taxable Social Security limit for 45 years (to get an idea of this amount, consider the limit was $3,000 dollars in 1940 and $106,800 in 2010 – both nice salaries). Our test dummy paid the maximum Social Security taxes every year.
On the other hand, upon retirement, he would receive maximum benefits. According to the Social Security Administration, maximum taxation is a prerequisite to maximum payouts. Next, we added Social Security benefits received over 13 years (derived from the average U.S. life expectancy of about 78). Finally, we calculated the difference between taxes paid over 45 years and the payouts received for 13. The results were shocking.
Before 2007, our projected retirees were net gainers from Social Security. 2007 retirees were the first net losers at –$411. By 2011, retirees will be –$40,403 in the red.
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