Medicare Planning

The Winners and Losers in Social Security

Low earners often get more from Social Security benefits than they pay in, while high earners get less. One-income couples also fare better

What will you receive in Social Security benefits compared with the taxes you pay in?The short answer: Low earners often get more than they put in, while high earners get less. By one estimate, the turning point is currently around $65,000 for a single worker and double that for couples earning similar pay.

This question has come up since the Social Security Administration last week announced a payroll-tax increase affecting 12 million higher-income workers. On Jan. 1, the wage base rises to $127,200—a 7.3% increase over this year’s level of $118,500. The wage base is the amount of a worker’s pay subject to Social Security tax, which is a flat 6.2%, and the upper limit is known as the “cap.”

The cap generally inches up each year, but next year’s increase is particularly sharp because the 2016 adjustment was postponed when Social Security benefits stayed flat for the year.

As a result, workers subject to the hike will owe up to $539 more in 2017. The higher cap also affects the employer’s portion of the tax and what’s owed by self-employed workers, although they are allowed income-tax deductions that can offset the impact.

The more generous benefits for lower-wage workers have long been a feature of the Social Security system, said Eugene Steuerle, a former Treasury official in the Reagan administration who is now with Tax Policy Center in Washington. “The idea has always been to replace a greater percentage of lower-earners’ wages,” he said.

To give a sense of how Social Security works for lower earners compared with higher earners, Mr. Steuerle provided data on Social Security taxes paid and expected lifetime retirement benefits for categories of workers over many decades. The results are in 2015 dollars and assume a 2% rate of return on savings after inflation. They include the employer’s as well as employee’s portion of the tax but don’t include income tax owed on benefits by higher-income retirees.

For simplicity’s sake, the data assumed no change in income or marital status over time, and weren’t adjusted for life expectancy based on income.

Still, the results are revealing.A one-earner couple retiring in 2020 with low wages—$22,500 in 2015 dollars—would have paid the equivalent of $129,000 in 2015 dollars in Social Security taxes. That couple can expect to receive lifetime benefits of $309,000 in 2015 dollars, more than twice what the worker paid in.

By contrast, a couple retiring in 2020 in which both spouses earn the same pay and who have always earned wages at the cap or higher ($118,500 in 2015 dollars) will have paid in some $1,358,000. But on average they’ll receive benefits worth $1,020,000, or about 75% of what they paid in.

Single workers often pay taxes and receive benefits that are about one-half of those for dual-earner couples with equal pay.

Lower-wage workers aren’t the only category of “winners” under Social Security. One-earner couples, and couples in which the spouses earn vastly different amounts, often come out ahead of dual-earner couples who have similar pay. So do retirees with much younger spouses and those with minor children when the retiree is collecting benefits.

Social Security “losers” often include single parents, who suffer because they miss out on spousal benefits that they in effect pay for, says Mr. Steuerle. In addition, people who stay in the workforce longer than 35 years typically see very little increase in their benefits as a result of the extra years of taxes paid.

Another large category of “losers,” say experts, is younger generations compared with older ones. In 2010, Social Security began paying out more in benefits than it is collecting in taxes. The decline in the number of workers per retiree from three to two as baby boomers retire is making this problem worse.

To stabilize the system, “taxes will have to go up or benefit growth will have to be trimmed,” said Stephen Entin, an economist and former Treasury official during the Reagan administration who is now with the Tax Foundation in Washington. “Either way, the return on the contributions for all workers will be depressed compared to current levels over time.”Write to Laura Saunders at

Leave a Reply

Your email address will not be published. Required fields are marked *