The Social Security Administration’s latest “Actuarial Note” is as fascinating as actuarial notes get.  Its main lessons:

1. Social Security used to be a great deal.  The poorest one-earner couples born in 1920 got a real return of 9.18%; the richest one-earner couples got 5.87%.

2. Social Security remains a very good deal for one-earner couples: about 6.5% for the very poor, 5.5% for the poor, 4.5% for middle-income, 3.9% for the rich, and 2.9% for the richest (people who max out their Social Security taxes).  These rates have held almost steady for cohorts born since 1940.

3. For singles and two-earner couples, Social Security’s return has heavily fallen.  Even the middle-income (career average inflation-adjusted earnings of $41,655 per year) now get a crummy return of under 3%.  For the rich, the return is around 2%, and for the richest, about 1%. 

4. Over time, singles and two-earner couples have become the norm.  So the decline in Social Security’s return is more pervasive than it looks.

All these return estimates are based on the current formula.  The SSA also considers what will happen if taxes are raised or benefits are cut to keep the program out of deficit.  The two scenarios:

The Increased Payroll Tax scenario raises payroll-tax
rates, beginning with the year of Trust Fund reserve
depletion, to finance scheduled benefits fully in every
year. The payroll-tax rate increases from the present law
amount of 12.4 percent beginning in 2033. The payroll-tax
rate increases to 16.54 percent for 2034 and continues
to increase year-by-year, reaching 16.89 percent for
2086. Under this scenario, the payroll tax rate increases
further after 2086 due to continuing increases in life

Under the third scenario, Payable Benefits, payroll-tax
rates hold constant while benefits decrease for each year
after Trust Fund reserve depletion so that, for the Trust
Funds as a whole, benefits paid equal taxes received.
The reductions from scheduled levels apply equally proportionally
to all types of benefits paid during the year.

5. In both alternate scenarios, returns for recent cohorts (born 1970 and later) fall by about 1 percentage-point.  Single-earner couples aside, a majority of recent cohorts can expect a real return of 2% or less.  The richest singles and two-earner couples get a return barely over 0%.

6. These are the SSA’s own estimates.  What would neutral outsiders’ estimates say?