Here’s Why the Fate of Social Security Is Important Even for the Wealthy
As Social Security barrels toward a looming funding shortfall that could wipe out nearly one-quarter of its current benefits, one of the potential fixes being proposed is to cut or eliminate retirement benefits for the wealthy.
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The reasoning is that rich people have enough money socked away in their retirement accounts to live comfortably in retirement. Cutting them off means freeing up more Social Security funds for retirees who do need the money.
That makes sense when you are taking about uber-billionaires like Jeff Bezos and Warren Buffett, who presumably can skate by without the maximum Social Security payment, which will be $4,873 a month beginning in 2024.
But the term “wealthy” casts a very wide net in the United States — and not all wealthy people are billionaires or even millionaires. For example, if your definition of wealthy is the top 10% of earners, then someone who earns $167,639 a year qualifies, according to 2021 data from the Economic Policy Institute.
That’s a very good living at roughly three times the U.S. median income. But it hardly puts you in the same league as the country’s richest people — or anywhere near it. Unless you have many millions stashed away in retirement savings accounts, chances are you have a vested interest in the fate of Social Security.
Right now, that fate remains uncertain because of the upcoming depletion of Social Security’s Old Age and Survivors Insurance (OASI) Trust Fund. The OASI fund is expected to run out of money in about a decade, leaving Social Security solely dependent on payroll taxes for funding. Those taxes currently fund about 77% of benefits.
Even high earners who might otherwise qualify as “wealthy” will still rely heavily on Social Security benefits, according to a recent Dallas Morning News column by Scott Burns, creator of Couch Potato Investing.
“Social Security benefits are a large part of retirement income for people far up the income and personal success scale,” Burns wrote. “You can, for instance, have been in the top 5% to 10% of income for your entire working career and Social Security may still be your largest single source of income.”
He cited Social Security Administration figures showing the following payments for those who ranked among the top beneficiaries:
Top 10%: $2,900 a month
Top 5%: $3,200 a month
Top 1%: $4,100 a month
As Burns noted, you would need a “significant portfolio” to provide the same income.
For example, if you were invested in a typical 60/40 (equities/fixed income) portfolio, you’d need at least 240 to 300 times your monthly benefit to be “about 90% certain” that your purchasing power would keep up with inflation and that you wouldn’t run out of money for 30 years.
“That’s the number of years you might live if you retired at 65,” Burns wrote. “Apply that range to the median monthly benefit of $1,800 a month, and you’d need to have somewhere between $432,000 and $540,000 in financial assets to produce the same amount of inflation-adjusted income as provided by Social Security.”
People in the top 1% of monthly Social Security benefits, who collect at least $4,100 a month, would need to have as much as $1.23 million in financial assets to produce the same income as they get from Social Security.
“When it comes to fixing Social Security, the stakes are huge for just about everyone,” Burns concluded.
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This article originally appeared on GOBankingRates.com: Here’s Why the Fate of Social Security Is Important Even for the Wealthy
