Here’s How Much More Would You Need to Save if Social Security Is Capped at $50K
Written by
Chris Adam
Edited by
Angela Corry
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What can be done as Social Security faces an uncertain future? One proposal is a $100,000-per-year cap for married couples and $50,000 for individuals.
The “Six Figure Limit” proposal from the Committee for a Responsible Federal Budget looks to target top earners to help close part of the funding gap.
While it’s just an idea for now, GOBankingRates talked to some financial experts for perspective on what it could mean for your savings.
Look at Your Income Gap
“If Social Security were capped at $50,000, the extra amount someone would need to save really comes down to the income gap it creates,” said Taylor Kovar, certified financial planner (CFP) and co-founder of UseKlear.com (previously BudgetGPT).
“For example, if you were expecting $65,000 and now it’s $50,000, that $15,000 difference usually doesn’t mean you need $15,000 more saved, it tends to mean closer to $300,000 to $400,000 more invested to safely replace that income over time.”
Per Kovar, that’s the part people don’t always realize. He noted even a relatively small drop in Social Security benefits can translate into needing a few hundred thousand dollars more in personal savings, depending on how long you’re in retirement and how you plan to draw from your accounts.
Consider Your Age
“If you’re in your 30s, and you’re planning that the cap will be implemented, you’ll probably need to plan for a way to provide an additional $1,000 a month to your retirement income,” said Melanie Musson, a finance expert with Quote.com. “You can do that by contributing an extra $100 a month to your retirement account.”
According to Musson, if you’re in your 20s, the $50K cap will have an even greater impact on you throughout your retirement, so you should also start saving an additional $100 a month or more in your retirement investments.
Look at Stock Market Options
“Most asset classes outperform Social Security returns in the long run,” said Marcus Sturdivant Sr., managing member of The ABC Squared. “For example, the S&P 500 returns 6-10% over ten years, while Social Security returns 2-4%, at best, and a real rate that is even lower when the cost-of-living adjustment and inflation are factored in.”
Think About All Your Options
“A cap should be a wake-up call,” said Andrew Lokenauth, founder of the blog Fluent in Finance. “If you’re a high earner banking on max Social Security benefits, you need a private savings buffer of at least $200,000 to $225,000 on top of what you’ve built. The move right now is to max your 401(k), fund a Roth IRA and build taxable brokerage savings.”
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