Most Senior Citizens Haven’t Fully Paid for Their Medicare, Social Security Benefits

Have senior citizens really “paid for” the Medicare and Social Security benefits they enjoy in retirement?  Many believe so. But for the vast majority, the answer is – unequivocally- No.

Federal entitlement payroll taxes and general revenues finance Medicare and Social Security benefits on a “pay–as-you-go” basis, meaning today’s workers’ taxes fund today’s retirees. Workers’ taxes are not deposited in anything like a private sector “trust fund” today and “saved” for tomorrow’s benefits.

>>> Read the full report: Reducing Taxpayer Subsidies to Wealthy Medicare Recipients Is Sound Policy

In fact, many senior citizens receive more in benefits than they paid in taxes. Analyzing the Medicare and Social Security data, Urban Institute researchers estimate that a married couple in a single earner household, retiring in 2015 – and earning an average annual income ($47,800 in today’s dollars) – will have paid an estimated $683,000 in lifetime Medicare and Social Security taxes, but will secure $1,038,000 in lifetime benefits in retirement.

But, as the chart below shows, that payment and benefit pattern applies to retirees in a variety of annual income brackets-ranging from households in the lowest income bracket ($22,500) to those in a fairly high income bracket ($119,100).

Big Taxpayer Challenge

Medicare today presents the biggest fiscal challenge for current and future taxpayers. Medicare Part A (hospitalization) is mandatory, and, not surprisingly, younger workers’ payroll taxes often fund retirees who are financially better off than they are.  Enrollment in Medicare Part B (covering physician’s services) and Part D (drug coverage) is voluntaryan enormous unfunded obligation (over the next 75 years) of between $28 and $37 trillion. That jaw-dropping dollar amount represents the promises made to Medicare beneficiaries that are not financed by payroll taxes or dedicated revenues.