Should the Rich Lose Their Social Security Benefits?

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Should the rich get Social SecurityMillions of Social Security recipients get minimum-wage benefits that are barely enough to make ends meet. At the other end of the spectrum, though, many retirees who could get by just fine without any Social Security payments at all receive much larger monthly benefits from the government.

With Social Security in crisis, does it make sense to give those big payouts to the people who paid the most in taxes along the way -- or should they be forced to sacrifice those benefits for those who are less fortunate?

Before you decide whether the government should cut off rich retirees from part or all of their Social Security benefits, let's first look at exactly how high-income earners get treated under Social Security currently.

What the Wealthy Get from Social Security

Under current law, Social Security benefits get calculated based on your average income throughout your career. The more you make, the higher your benefits are, up to the yearly maximum on which the government collects Social Security taxes -- $110,100 for 2012.

But what many don't realize is that in figuring your monthly check, not all earnings are created equal.
  • The first $700 to $800 in average monthly earnings counts the most, turning into $0.90 of benefits per $1 of income.
  • Above that level, the increases in benefits get a lot slower -- $0.32 per $1 up to about $4,600 in 2012, and $0.15 per $1 above that.
So even though top wage-earners get more benefits, they don't get as much more in benefits as their higher earnings would suggest.

Furthermore, many high-income retirees pay taxes on as much as 85% of their Social Security benefits. For top-bracket retirees, that has the same impact as slashing almost 30% off their monthly checks.

Two Ways to Look at the Issue

Obviously, arguments for and against giving Social Security to the rich create strong emotions.

On one hand, high-income earners pay a lot of money in Social Security taxes, and with the tapered benefit structure, many feel that they already don't get their fair share of what they put into the Social Security system. If Social Security calculated benefits without the earnings breakpoints described above, then high-income earners would get much more in their monthly retirement checks.

On the other side of the argument, many believe that the purpose of Social Security isn't to give people payback for the payroll taxes they've had withheld from their paychecks throughout their lifetimes, but rather to provide an economic safety net for all workers. With insurance for disabilities and other hardships as well as retirement benefits, Social Security acts as a supplement for those who need it. Proponents of measures like means-testing argue that if you don't actually need the money, you shouldn't get benefits.

Does Rolling Back Benefits for the Rich Really Help?

The bigger question, though, is whether cutting benefits for the rich would actually do any good.

A 2011 study from the progressive Center for Economic and Policy Research concluded that phasing out benefits as income levels rose would have little or no effect on Social Security's viability going forward, especially when you consider the ways that the rich would respond to the move.

Right now, 90% of benefits go to individuals with less than $50,000 in annual income (not including what they get in Social Security). In order to have a marked impact on Social Security's financial health, a means test would have to hit far more than just the very rich. More importantly, the added costs of administering a means test would offset any savings.

Still, the practical impact of means-testing doesn't change the way many people feel about the fairness of the program. As long as Social Security remains in financial trouble, reformers will look at cutting back on benefits for the rich as a possible solution to a much bigger problem.

Motley Fool contributor Dan Caplinger doesn't count on Social Security for anything. You can follow him on Twitter here.

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meganatucker

Wow this is really a question of "do we want to be communists or don't we." The logic to penalize those who put more money into the system because they "don't need it" is so blatantly communist I can hardly believe I'm reading this. When you reward production you get production, when you penalize production you get non-production. Social security isn't an optional insurance policy which people can choose to participate in or not, it's a mandatory tax, and no one has any right to take away from the rich by force to give to the poor - that's Communism pure and simple. Communism destroyed millions of lives in Russia because it doesn't work - it rewards non-production and thus creates non-production till the point where there isn't even enough money left to pay the non-producers. And if we don't keep our heads it will do the same in the US.

July 02 2012 at 12:12 PM Report abuse rate up rate down Reply
Mostberg

In my case I am neither rich nor poor. But one factoid got my attention recently. I chose to start drawing reduced benefits at the age of 62. I am now 75. On average I have received somewhat more than $10,000 per year in SS benefits. Meanwhile what I put in since the age of 14 was approximately $25,000. My employers would have matched that for a total of $50,000 in my "account". Give the average recieived of $10,000 per year (a low estimate) I have received more than $130,000 from an "investment" of only $50,000. Very good and I hope to live a bit longer. The payout from the few dollars we put into medicaire each mouth would vary, but likely is even more distorted on the high side. Likely I am sort of average having never earned more than about $30,000 per year. But this is unsustainable and everyone who is even fairly math literate knows that. Even more troubling is the minimum payment paid to people in retirement who earned - and paid in - very, very little. We need to transition to another system that is sustainable. Again, counting on the "rich" to bail us out of this is foolhardy because it would not solve the problem although it would make the low income feel better based on envy.

March 13 2012 at 12:05 PM Report abuse +1 rate up rate down Reply
Mary and Brian

Social Security is a bought and paid for retirement income. Yes, the "Rich" should collect if they paid for it. My Father worked every day for 48 years, paying into the system. With careful planning he retired what many would consider "wealthy". He absolutely deserves the retirement he paid for. In a few more years I will be applying for my own benefits, if I had had the use of the money that I and my employers paid into my SS acount, I would have a very comfortable annuity, if the benefit I have paid for is not available, we may have to take our Government to account.

March 05 2012 at 1:09 PM Report abuse +1 rate up rate down Reply
KeegoAlan

Type your comment here I believe a better question is do people who never put a single penny into social security deserve to be paid out of that non-existent fund?

Of course the rich should collect, especially since everyone in the country now knows it's the 1%. So if the 1% stop taking payments from ALL the funds they had to contribute for years, it's still insolvent due to people who never put a penny in taking out various amounts.


Poor broke down immigrant coming here at retirement age gets Social Security. Dope fiend drug addict ill from his/her own actions gets Social Security.

Why aren't elected officials on Social Security? That's a better question yet to ask

March 05 2012 at 12:59 PM Report abuse +1 rate up rate down Reply
jcecoman13

Can't punish success and reward failure.....................

March 05 2012 at 9:11 AM Report abuse +1 rate up rate down Reply
Sexy Hornball

what do they consider rich?

March 04 2012 at 8:59 PM Report abuse rate up rate down Reply
Big AL

They deserve it if they paid into it. Just because you worked hard and spent less, You get penalized?? I don't buy into that theory. I was taught that Communism , worked that way.

March 04 2012 at 3:40 PM Report abuse +1 rate up rate down Reply
hbrascal2

Let's put the Social Security back the way it was when FDR designed it. If the the husband and wife pays into it, it, they should get the family money out of it. Those who do not pay in, should have no access to the fund...All the money accrued by interest, and the moneys left in by people who die early, should stay in the fund, too, not put into that famous general slush fund the Wizards of Washington try to run our country with. Under the presant setup, our pesident threatened not to pay Social Security - do those who pay into it, still have to pay into it - the same with the employers. .

March 04 2012 at 1:31 AM Report abuse +1 rate up rate down Reply
ktonyjames

For commentator gregbo520 and anyone else, please google Social Secutiry (United states) and scroll to the Wikipedia entry before you continue with all your misinformation about the Social Security Trust Fund. It is supposedly a separate entity, not a fund for general use by our politicians, as is the general practice. They would prefer to run our country into debt than cut spending or raise taxes. Inflated dollars will not solve the problem of our debts.

March 03 2012 at 10:56 PM Report abuse rate up rate down Reply
ktonyjames

For commentator gregbo520 and anyone else, please google Social Secutiry (United states) and scroll to the Wikipedia entry before you continue with all your misinformation about the Social Security Trust Fund. It is supposedly a separate entity, not a fund for general use by our politicians, as is the general practice. They would prefer to run our country into debt than cut spending or raise taxes. Inflated dollars will not solve the problem of our debts.

March 03 2012 at 10:22 PM Report abuse rate up rate down Reply