Retirement planning involves sacrificing a portion of what we earn today and investing that money in the hope that one day we’ll have enough assets from which we can draw an income. But the Social Security and Medicare systems operate differently, taking a portion of earnings from today’s workers to pay for the needs of today’s retirees.

Just how much do we pay out in Social Security and Medicare taxes over a lifetime, compared to how much we receive in benefits? The answer depends on several variables, including gender, earnings, household configuration, the age at which we retire and our health. But generally, we receive far more in benefits than we pay into the system, according to new figures released by the Urban Institute.

The nonpartisan think tank released tables showing how much the average person receives in lifetime benefits versus how much he or she pays in taxes, assuming average life spans and a 2 percent real interest rate (meaning 2 percent above the inflation rate). A Q&A with Institute Fellow C. Eugene Steuerle, one of the authors of the study, explains the assumptions used in the calculations.

The upshot

No matter how much you pay into the system, whether you earn the average wage over a lifetime ($43,100 in 2010 dollars) or if you’re in a two-income household where one earns a high wage and the other earns an average wage, you get back substantially more than you pay in. But those on the high end of the wage scale pay proportionally more in taxes than the average wage earner, not surprisingly.

Example: A male average earner who retired at age 65 in 2010 paid out $345,000 in total Social Security and Medicare taxes, but will receive $417,000 in total lifetime benefits ($464,000 for a woman).

A much bigger disparity in taxes versus benefits occurs for couples. In the case of a household with only one wage earner, the taxes paid out were $345,000, but the benefits received by both parties will be $778,000. For two-earner couples where one earned the average wage and the other earned a low wage ($19,400), tax payout was $500,000, but benefits will be $800,000.

Those who retired in decades past saw much bigger returns for their payroll tax investment.

But clearly this situation is not sustainable. It’s like putting all your expenses on a credit card knowing full well you don’t have the means to pay it back. Social Security is still fixable, but Medicare is a much bigger problem.

“What we’re trying to point out through these numbers is that relying on deficits and income tax revenues to make up the gap in Medicare funding means cutting other things that government does or leaving heavy burdens for future generations to pay,” says Steuerle. “We’re all responsible for dealing with our large future projected deficits both as a whole and within our social welfare systems; we’re not ‘entitled’ by any reasonable calculation to leave the costs of fixing them to younger generations.”

It’s really not fair to saddle young folks with these costs at the expense of economic growth, and the sooner our political leaders address this problem, the better for everyone.

But in an illogical move, the leadership in December cut payroll taxes by 2 percent through 2011.

We can fritter away this “found money” or do something smart with it, like increase our retirement plan contributions by at least that amount. If our leaders don’t behave responsibly, it behooves us to do so.

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