By Peter Huessy
You make $50,000 on average from 1993-2060; you work for 50 years and live until 87. First job was at age 20.
You pay an average of 12.4% both employee and employer for social security.
$6300 goes to Uncle Sam, half of which is deductible by the employer.
But you pay income and Social Security tax on 100% of that that portion of your salary that is withheld.
Let’s assume a 15% federal tax rate and we will use a state tax of 5% because you pay that too.
On $3150 x 5% state tax x 12.4% payroll tax and 15% for the Fed tax; total comes to $32.4% or $$1050 rounded up to 33%.
So, for a $50,000 salary you the employee pay $3150 in Social Security payments and on the Social Security withheld you pay $1050 in taxes of various kinds or $4200.
50 years x $4200 (doesn’t count the employer payment)=$210,000
Adding in the employer share of $3150 x 50 years or $155,000 for a total of $365,000 you sent into Social Security and the US government.
Let us say you decide to get Social Security payments at age 68 of $1980 or $2465 at age 70.
Let us go with $2465 x 12=$28,580 but you lose $2,200 to Medicare. Net is thus $28,000. Then you pay 20% federal tax of $5,600 and you pay $12.4% Social Security tax or $3,472 so you lose a little more than $8,000. So, you net $20,000 and you pay 5% state tax, so you net $19,000.
You pay into the US government $365,000. Get out $19,000 for 19 years.
If you took the same amount of money and earned only 3% for 50 years you would have at age 70: $1,112,000. Or $56,000 a year every year for 20 years. And still have $500,000 to leave your children. And you get $36,000 more a year. If you don’t tax $25,000 of Social Security payments at an assumed 20% per year, that is a savings of $5,000 a year x 20 years of retirement or $100,000.
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Peter Huessy is a Member of the Montgomery County Republican Central Committee. Since 1981 he has been President of Geo-Strategic Analysis of Potomac, Maryland. He was a former special assistant to the Secretary of the Interior and consultant to the US Air Force. He can be reached at [email protected]