Can Millionaires and Billionaires Collect Social Security?

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Although to some degree it might seem as if millionaires and billionaires shouldn’t be collecting Social Security, the truth is there is no law against it, and mathematically it makes sense. Social Security isn’t simply a welfare program, with money handed out to anyone who asks. Rather, Social Security is funded by payroll taxes on workers.

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As millionaires and billionaires by definition earn more money than most Americans throughout their careers, they also pay a higher amount of tax into the program. Just because they may not be “in need” when they retire doesn’t mean that they haven’t funded the program along the way, more so even than most Americans. Here’s a quick look at how Social Security actually works, along with a discussion of how millionaires and billionaires do benefit more than some Americans from the structure of the program. 

How Is Social Security Funded?

Social Security is funded by payroll taxes on workers. Current workers pay into the system now for the benefit of retirees, and when those workers retire themselves, their retirement will be funded by the next generation of taxpayers.

When needed, additional money is paid into the system from the Social Security Trust Fund, which consists of excess contributions from prior years. One of the problems with Social Security as it is currently structured is that the Social Security Trust Fund is rapidly becoming depleted, and it may be insolvent in 2033 based on current projections. But retirees will still get payments from taxes paid into the system from current workers.

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What Is the Social Security Tax Rate?

Current workers pay a tax of 6.2% in Old-Age, Survivors and Disability Insurance taxes, along with 1.45% in Medicare taxes. Combined, workers pay 7.65% of their income into Social Security. Employers pay a matching 7.65% tax on behalf of their workers. As self-employed workers are both employers and employees, they have to pay both sides of the tax, amounting to a total of 15.3%. 

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How Do Wealthy Americans Benefit From the Structure of Social Security Taxes?

Although all workers with earned income pay 6.2% in OASDI taxes, there is an income level above which that tax vanishes. For 2022, this Social Security wage base is $147,000. This means that if you earn more than this amount in 2022, you won’t have to pay that tax on your excess earnings. This can be a huge benefit for millionaires and billionaires, as they end up being taxed on only a small portion of their earnings. By contrast, most Americans end up paying OASDI and Medicare taxes on 100% of their earnings. 

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What Are the Average and Maximum Social Security Benefits?

For 2022, the average Social Security retirement benefit is $1,657. However, the maximum possible benefit is $4,194. To earn this benefit, you’d have to wait to file for Social Security until age 70, and you’d have to earn at least as much as the Social Security wage base for 35 years. In other words, most Americans draw nowhere near the Social Security maximum.

This maximum payout helps level the playing field when it comes to millionaires and billionaires. While high earners can avoid Social Security taxes on their earnings above the wage base, their maximum payout is similarly capped. This is because the Social Security retirement formula doesn’t account for earnings above the wage base. Whether you earn $147,000 or $147 million in 2022, your Social Security taxes — and the credit you’ll get toward your future retirement benefit — will be the same. 

When Might a Millionaire or Billionaire Not Be Eligible for Social Security Benefits?

Just because you reach retirement age doesn’t mean you qualify for Social Security benefits. Technically, you need 40 “quarters of coverage” to earn Social Security benefits, which for most workers means 10 years or more of paying Social Security taxes. But Social Security taxes only apply to earned income. In the eyes of the IRS, investment income, such as dividends from stocks and interest from bonds, doesn’t count as “earned income.” As many millionaires and billionaires inherited their wealth and live off investment income, this means they don’t pay Social Security taxes and are thus ineligible for retirement benefits unless they work and pay taxes that way. 

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About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.

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