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Quick Read
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High earners commonly qualify for Social Security’s maximum retirement benefit.
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Social Security needs money to prevent benefit cuts.
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Some advocates are calling to cap higher earners’ benefits to preserve funds for Social Security.
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A recent study identified one single habit that doubled Americans’ retirement savings and moved retirement from dream, to reality. Read more here.
Read: Data Shows One Habit Doubles American’s Savings And Boosts Retirement
Most Americans drastically underestimate how much they need to retire and overestimate how prepared they are. But data shows that people with one habit have more than double the savings of those who don’t.
You’ll often hear that trying to retire on Social Security alone is a bad idea. Given that the average monthly retirement benefit today is only about $2,076, it’s easy to see why.
But some seniors on Social Security get a much larger monthly benefit than that. In fact, as the Committee for a Responsible Federal Budget, a D.C. think tank, points out, some older couples are now receiving roughly $100,000 a year in Social Security after having paid a lot into the program for many years.
But now, advocates are suggesting that higher earners have their benefits capped. Here’s why — and how likely they are to get their way.
Why advocates are pushing to cap benefits for higher earners
The amount of Social Security you’re eligible for in retirement hinges on how much you pay into the program during your working years. Each year, there’s a maximum wage that’s taxed to fund Social Security. This year, it’s $184,500.
Higher earners pay more into Social Security than lower earners. In exchange, they’re typically entitled to larger monthly benefits in retirement. But some advocates want to change that.
The reason? Social Security is facing a serious funding shortfall. In the coming years, the program is not expected to take in enough revenue to keep up with scheduled benefits.
At this point, the program’s trust funds are expected to run dry as early as 2032, according to some estimates. Once that happens, Social Security may be forced to cut benefits unless lawmakers come up with a solution to prevent that from happening.
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Putting a cap on benefits for higher earners is now a solution some advocates are pushing for to stave off cuts. If policymakers cap Social Security benefits at $50,000 a year for higher-earning seniors who are single and $100,000 for couples, it could be a big money saver for the program.
Will this proposal pass?
Lawmakers might entertain the aforementioned proposal. But it’s unlikely to pass.
First, it’s worth noting that Social Security already has a maximum monthly benefit it will pay seniors. That maximum benefit is tied to the annual wage cap.
Secondly, Social Security, by nature, is not a welfare program. The whole premise of Social Security is that you pay into it and get something out of it.
Social Security has never been limited to low earners, and even billionaires who paid their taxes are entitled to benefits. Penalizing higher earners — those who paid the most into the program — is a decision most lawmakers probably won’t want on their hands.
Also, if lawmakers were to absolutely cap benefits at $100,000 a year ($50,000 for singles) with no inflation adjustment, over time, it could have a very detrimental impact on retirees.
Of course, the logic behind the cap is understandable. Couples who earned enough money to be eligible for over $100,000 a year in Social Security should have, in theory, had ample opportunity to save for retirement. And as such, they shouldn’t necessarily need such high benefits.
But Social Security isn’t a matter of need. Recipients have never been means tested in the past, and doing so in the future changes the whole nature of the program. Because of that, this proposal is pretty tenuous.
Data Shows One Habit Doubles American’s Savings And Boosts Retirement
Most Americans drastically underestimate how much they need to retire and overestimate how prepared they are. But data shows that people with one habit have more than double the savings of those who don’t.
And no, it’s got nothing to do with increasing your income, savings, clipping coupons, or even cutting back on your lifestyle. It’s much more straightforward (and powerful) than any of that. Frankly, it’s shocking more people don’t adopt the habit given how easy it is.