9 minimum-wage workers to pay for 1 social security check

[sweetnpetite]

The Basics
Receiving Social Security? Thank 9 workers

It takes nine minimum-wage or one highly paid worker to cover the cost of the average monthly Social Security benefit. Now which kinds of jobs should we be trying to create?

By Scott Burns

This week's rude question: How many McJobs does it take to produce a Social Security retirement check?

If we treated this as a lightbulb joke -- as in "How many BLANKS does it take to change a lightbulb?" -- we could expect a variety of answers, such as:
No one knows for certain, but the number is rising.

Three, at last count, plus a crowd of anxious watchers.

Four, if one of them is blond.
To avoid a lot of confusion and bad jokes, allow me to introduce the McJobs/retiree exchange rate, complete with a supporting online calculator. It measures how many workers it takes to pay in enough employment tax revenue for a retiree to receive his or her particular monthly check. (You can access the calculator at ScottBurns.com. There is no charge, but registration is required.) Unlike the usual reporting on Social Security -- including mine -- this is a very personal measure. It uses monthly retirement checks that are under $2,000 and hourly wages that are under $44. No billions or trillions need apply.

That way, a retiree can get a direct measure of who is supporting her -- and how many of them it takes.

A steep exchange rate
I've called it the McJobs/retiree exchange rate because the word McJobs has come to symbolize the job future many young workers fear -- a long series of unrelated jobs with low pay and minimal benefits. I mean no disrespect for McDonald's, which has trademarked the word "McJOBS," only recognition that the phrase and company have top dog "share of mind" when it comes to public discussion of jobs.

So let's get to it.

According to the Social Security Administration, the average retirement check in August was $926.90. The largest possible check for retiring this year at full retirement age is $1,793.61. If we put the minimum wage, $5.15 an hour, in the calculator, we learn each hour produces 64 cents of employment tax using the full 12.4% employer/employee rate (another 2.90% goes to Medicare).

That, in turn, means it takes 1,451 hours of minimum-wage work per month to produce the average retirement check. That's about nine full-time workers -- a lot of workers. Since the actual ratio of workers to retirees is currently about 3-to-1, we're fortunate that many workers earn a good deal more than the minimum wage.

Higher pay improves the picture
The average worker at Wal-Mart is reported to earn about $9.70 an hour with minimal benefits. That means a Wal-Mart worker generates $1.20 an hour in employment taxes and would need to work about 770 hours a month to produce that $926.90 check. So it would take nearly five full-time Wal-Mart employees to produce one average Social Security check.

With national average hourly earnings at $15.30, the average worker generates $1.90 an hour in employment taxes. The worker would need to work 489 hours a month to generate the average retirement check. That's roughly equal to three full-time workers.

Now let's try the other end of the wage scale.

For 2004, the top of the employment tax wage base is $87,900, an income that figures to about $44 an hour. Only about 7% of all workers earn more. Those at the top pay about $5.46 an hour in employment taxes -- more than the minimum wage. It takes only one top earner to make good on the average retiree's Social Security check.

Why am I telling you all this?

Simple. As the boomers head toward retirement, we need to be keenly aware of the trend in wages. If we create too many McJobs and not enough big jobs, or if big jobs are displaced by McJobs, paying out those retirement checks will get pretty iffy. If you are retired or about to retire, you should start to think up close and personal about your real life "support group" -- the team of workers that pays your bills.

http://moneycentral.msn.com/content/RetirementandWills/P98826.asp?GT1=5738

 

[rgraham666]

The people in charge know this sweet, and they don't care.

They're not dependent on Social Security for their retirement.

 

[R. Richard]

Back in the 1960s the federal government allowed certain organizations to opt out of Social Security. The opportunity was available for only a brief time and only a few organizations took advantage of the situation. IIRC at least one city and one school district in Texas opted out. (You can search it out in the 'Net.)

The organizations that opted out are now beginning to retire people. The retirees receive a monthly check that is more than four times what they would get under SS. Plus, the retirement account BELONGS to the retiree, not the federal government.

The federal government cannot suddenly switch to the technique used by the Texan, as the SS 'accounts' consist of IOUs with the actual money raided by Congress to pay for spending programs.

What Bush wants to do is a small step in the right direction. The SS system has to be reformed to allow individuals to own their own accounts and to invest the accounts in something like 'super mutual funds' that grow with the US economy. Insurance companys can insure the accounts against loss for a portion of the gain. (This last is what is done in Texas.)

As to creating jobs, this is now being done. The traditional large employers are now being augmented by entrepreneurs. I know of several people in my area who make a decent living selling items on eBay.

 

[BlackShanglan]

Richard has a good point. The real question for me is not "how many McJobs does it take to pay for one retiring person?" but "why have we established a system where we take people's money, allegedly for their retirement, and blow it on whatever congresspeople feel like buying this week, leaving the next generation to make up the difference?" I don't mind whether we go with individual accounts or keep it in a big unified fund, but it's dangerous to keep letting our representatives use it as the biggest slush fund in the history of government. One way or another, we need to wean Congress off of their reliance on SS IOU's and move the system toward one in which people's money is wisely invested and returned to them with interest.