RESEARCH REPORT Social Security & Medicare Lifetime Benefits ...

TAX POL ICY CENTER

RESEARCH REPORT

Social Security & Medicare Lifetime Benefits and Taxes: 2022

C. Eugene Steuerle January 2023

Karen E. Smith

ABOUT THE URBAN INSTITUTE The nonprofit Urban Institute is a leading research organization dedicated to developing evidence-based insights that improve people's lives and strengthen communities. For 50 years, Urban has been the trusted source for rigorous analysis of complex social and economic issues; strategic advice to policymakers, philanthropists, and practitioners; and new, promising ideas that expand opportunities for all. Our work inspires effective decisions that advance fairness and enhance the well-being of people and places.

Copyright ? January 2023. Urban Institute. Permission is granted for reproduction of this file, with attribution to the Urban Institute. Cover image by Tim Meko.

Contents

Acknowledgments

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Executive Summary

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Social Security & Medicare Lifetime Benefits and Taxes: 2021

1

Results and Discussion

2

Tables

5

Appendix

21

Basic Data and Assumptions

21

Data

21

Work and Earnings Histories

21

Marriage

22

Mortality

22

Discount Rates

23

Calculating Lifetime Taxes

23

Included Taxes

23

Excluded Taxes

24

Calculating Expected Lifetime Benefits

24

Social Security Benefits

24

Medicare Benefits

24

Medicare Premiums

25

Medicare Cost Scenario

25

Notes

27

References

28

About the Authors

29

Statement of Independence

30

Acknowledgments

This report was funded by the Peter G. Peterson Foundation. We are grateful to them and to all our funders, who make it possible for Urban to advance its mission.

The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. Funders do not determine research findings or the insights and recommendations of Urban experts. Further information on the Urban Institute's funding principles is available at funding principles.

The report's calculations are based on a model originally developed at the Urban Institute in 1992. We update the model annually to use the most recent Social Security and Medicare Trustees demographic and economic assumptions. Many other people have contributed to the model's development and updates over the years including Jon Bakija, Gordon Mermin, Adam Carasso, Stephanie Rennane, Caleb Quakenbush, and Erald Kolasi.

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ACKNOWLEDGMENTS

Executive Summary

This report presents updated figures in 2022 dollars for the lifetime benefits earned and the lifetime taxes paid by hypothetical workers participating in Social Security and Medicare. It uniquely allows comparisons across a century of past and projected future beneficiaries starting with those who turned 65 from 1960 to 2060.

For a single male earning average wages every year and retiring in 2020 at age 65, lifetime Social Security and Medicare benefits would equal about $608,000 and, for a couple with one average earner and one low-wage earner, about $1,177,000. Those amounts rise and fall for other hypothetical households as their incomes rise and fall relative to average wages. Benefits also are scheduled to increase significantly for future retirees. rising with real wages in the case of Social Security and with higher health care costs and new health services in the case of Medicare.

As in our 2021 report, lifetime Social Security and Medicare taxes are still scheduled to be significantly lower than lifetime Social Security and Medicare benefits for most workers in future decades. This is partly because the Medicare component of the payroll tax was designed to cover hospital costs but not doctor, outpatient, and other services costs (and even those hospital costs are starting to rise well above the revenues required to fund them).

Given the near-term depletion of Social Security (expected in 2034) and Medicare hospital insurance trust funds (expected in 2028), these data allow policy makers to visualize how much scheduled lifetime Social Security and health benefits:

increase on a lifetime and annual basis; vary among people with different earnings and marriage histories; and vary across several decades of cohorts. They also make clear that reforms could scale back the rate of growth of benefit increases and still allow lifetime benefits to increase significantly for each cohort of future retirees. Simultaneously, the tables reveal how much lifetime Social Security taxes:

? Cover the cost of lifetime benefits that each cohort receives; and

? vary among different cohorts and people with different earnings and marriage histories.

EXECUTIVE SUMMARY

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