Understanding Social Security Benefits: Beyond the Average Check

The concept of an average Social Security monthly check can be misleading. In 2024 dollars, the average Social Security benefit, after deductions, is approximately $1,100 per month for individuals who earned an average of $60,000 over 20 years. However, this number does not fully capture the complexity of how Social Security benefits are determined and the factors that influence them.

How Social Security Benefits Are Determined

Old age income payments, including Social Security benefits, are based on the amount of earned income accumulated over a lifetime. The key factor is not a single average but the total earnings in a work lifetime. People can achieve a "living income" in old age with a high lifetime income or a low one, depending on their earning patterns. Social Security insurance serves as a safety net in cases of disability or death with dependents, but the best way to avoid relying on government insurance is investing in a robust economy.

The Robust Economy vs. Increasing Tax Rates

While other countries may balance their budgets by increasing tax rates on both businesses and individuals, this is not the ideal solution for the United States. It may seem easy initially, but it can create significant long-term issues for multiple generations. As of now, less than 10% of household leaders in the US seem to understand the importance of investing in a robust economy rather than relying on increased taxation.

Defining a Living Income

A "living income" has been defined by different standards over time. Historically, a living income adjusted for inflation to today's dollars was around $1.25 million. Today, a living lifetime earned income for a single individual is approximately $1.75 million. Tax shelters allow individuals to recoup up to 60% of their lifetime income from national insurance, equating to roughly $400 per month. Over a 35-year period, this amounts to $1.2 million, which, at an inflation rate of 3.8%, equates to $45,800 or $3,800 per month. This amount is considerably higher than what Social Security would pay an average individual ($1,500 per month).

The Importance of FICA

The tax that funds Social Security is the Federal Insurance Contribution Act (FICA) tax, not FIPCA (Federal Insurance and Pension Contribution Act). The FICA setup currently funds Social Security with 15% of earned income. If FIPCA were to exist, it would require a significantly higher 23% contribution rate, a substantial shift from the current model.

Conclusion

To directly answer the question of what an average Social Security check is, it is approximately $1,500 per month. However, this figure is abstract and does not fully reflect the rich interactions between earned income, updated standards of living, and government contributions. Understanding these nuances is crucial for effective planning and wealth management.