IIRC both employee A and B will also get the same payout from Social Security, assuming both of their salaries were at that level (at the cap or higher) for most of their careers.
Just looking at social security tax will never give you the full picture though, it’s just a small fraction of overall income taxes. And it misses the fact that wealthy people increase their wealth through other means, like long term capital gains. Someone making $100M per year through investments probably won’t work a day job and will therefore pay $0 social security tax.
Some one retiring today at 67 after paying the full cap for the last 35 years (1992–2026) would be getting ~4k/month SS, after paying ~479K (half from employer if not self employed) in SS only over 35 years.
The same amount invested would likely result in slightly lower payments at 4% return, but higher with actual market return at higher risk. Plus, allow for wealth transfer to dependents.
So, take that how you will.
(Numbers are rough since the cap is a moving target and 35 years is a long time).
But social security isn’t supposed to be a retirement plan. There’snot supposed to be a “return” on individualinvestment. It’s meant to be a social safety net. Therefore it’s fine for rich people to get less out of it.
It’s also why the retirement age when it was instituted was 2 years above the average American lifespan. It was only meant to cover retirees who had lived longer than expected that they didn’t want dying in the street.
But our lifespans got longer, so the number of people collecting social security as a retirement plan skyrocketed.
And the solution for the time being is simple: remove the $184,000 cap.
As long as the withdraw rate is based on contribution rate it doesn’t really matter what the cap is, because you’d be increasing withdrawal along with contributions. Social security income for someone who was making $185k/yr will be far more than enough to keep them out of poverty, which is the goal of social security. It’s not meant to be people’s only retirement account, it’s a safety net.
Having rich people pay into a system and then die is just beneficial. Even if their withdrawal rates are based on contributions. They will leave money behind or they with be neutral.
Someone making $36k a year pays $4,464 dollars for SS.
12.4% is a good retirement fund.
So government takes what could be your good retirement fund so you can save another 12.4%?
If someone really could save 24.8% they would have a great retirement. Yet the retirement for someone making $36K a year is looking grim.
Social Security is capped at $184,500
SS tax is 6.2% for individual and 6.2% for employer.
Employee A makes $184,500. $11,439 paid by individual and $11,439 paid by employer. $22,878 total.
22,878/184500=.124 or 12.4% tax.
Employee B makes $1,000,000. SS is capped at $184,500. $11,439 paid by individual and $11,439 paid by employer. $22,878 total.
22,878/1,000,000=.022 or 2.2% tax.
So someone making a million dollars would only have to give up 1.1% to SS tax and their employer 1.1% SS tax.
They will both pay the exact same amount into SS but the percentage isn’t as high because $815,500 of the million is not getting taxed.
IIRC both employee A and B will also get the same payout from Social Security, assuming both of their salaries were at that level (at the cap or higher) for most of their careers.
Just looking at social security tax will never give you the full picture though, it’s just a small fraction of overall income taxes. And it misses the fact that wealthy people increase their wealth through other means, like long term capital gains. Someone making $100M per year through investments probably won’t work a day job and will therefore pay $0 social security tax.
Fun fact.
Some one retiring today at 67 after paying the full cap for the last 35 years (1992–2026) would be getting ~4k/month SS, after paying ~479K (half from employer if not self employed) in SS only over 35 years.
The same amount invested would likely result in slightly lower payments at 4% return, but higher with actual market return at higher risk. Plus, allow for wealth transfer to dependents.
So, take that how you will.
(Numbers are rough since the cap is a moving target and 35 years is a long time).
But social security isn’t supposed to be a retirement plan. There’snot supposed to be a “return” on individualinvestment. It’s meant to be a social safety net. Therefore it’s fine for rich people to get less out of it.
It’s also why the retirement age when it was instituted was 2 years above the average American lifespan. It was only meant to cover retirees who had lived longer than expected that they didn’t want dying in the street.
But our lifespans got longer, so the number of people collecting social security as a retirement plan skyrocketed.
And the solution for the time being is simple: remove the $184,000 cap.
A unskilled laborer makes about $18 or $36k a year.
They have to pay 12.4% to social security.
36k×.124=4,464
$4,464
Income Tax
$36k-12,400=23,600
12,400×.1=$1,240
23,600×.12=$2,832
$1,240+$2,832=$4072
$4072
$4,464+$4072=$8,536
These unskilled laborers have to pay nearly a quarter of their pay in SS tax and Income Tax.
$8,536/$1,000,000=.0085
That’s less than 1% to them.
Yes the rich do not need safety nets but they should help build them
If you were making a $1m salary. You could give up less than a precent of that and make one unskilled laborer’s life 25% better.
It’s crazy how much $8,536 more would help someone making $36,000
Yet the system is designed so it takes your $8,536 selling you a safety net
As long as the withdraw rate is based on contribution rate it doesn’t really matter what the cap is, because you’d be increasing withdrawal along with contributions. Social security income for someone who was making $185k/yr will be far more than enough to keep them out of poverty, which is the goal of social security. It’s not meant to be people’s only retirement account, it’s a safety net.
Having rich people pay into a system and then die is just beneficial. Even if their withdrawal rates are based on contributions. They will leave money behind or they with be neutral.
Someone making $36k a year pays $4,464 dollars for SS.
12.4% is a good retirement fund.
So government takes what could be your good retirement fund so you can save another 12.4%?
If someone really could save 24.8% they would have a great retirement. Yet the retirement for someone making $36K a year is looking grim.
That’s all true, but I’m not sure if you’re disagreeing with something I said or supporting it?
But the withdrawal rate shouldn’t be based on contribution. A safety net that only provides for people who are already rich didn’t make any sense.