The Proposed Social Security Change That Could Lower Payouts for High Earners
A new proposal targeting Social Security benefits for high earners promises to shake up a program most Americans assume works the same way for everyone. The debate over fairness, funding, and who truly deserves a benefit cut is heating up…
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One big misconception about Social Security is that it’s for people who need financial assistance later in life. But that’s not how Social Security works.
Social Security benefits are earned by working and paying taxes on wages. There’s a certain number of earnings that’s taxed each year to fund the program. And come retirement, your personal wage history, along with your filing age, determines what monthly benefit you get.
As such, people across a range of income spectrums can qualify for Social Security benefits in retirement. This includes people who have no savings or income outside of Social Security, as well as those who have millions of dollars socked away.
But one proposal is seeking to change the nature of Social Security by capping benefits for higher earners. And while it certainly faces pushback, it’s important to know about.
Should there be a stricter limit on Social Security benefits?
Social Security has a maximum monthly benefit retirees are eligible to collect. Even so, high-earning couples can often qualify for upward of $100,000 a year in Social Security. One proposal is seeking to change that.
Dubbed the Six Figure Limit, the proposal seeks to set a $100,000 cap on the total Social Security benefit a senior couple can receive in a given year. That limit would be reduced to $50,000 for single retirees.
The logic behind the proposal is that it could help close Social Security’s pending funding shortfall. As it is, the program faces broad benefit cuts once its trust fund runs out. The aforementioned limit wouldn’t close the program’s funding gap completely, but it could address about 20% of it.
The second part of the logic is that people who are eligible for more than $100,000 a year in Social Security as couples or $50,000 as singles are typically very high earners. People in that boat can conceivably save for retirement on their own, making them less reliant on Social Security in their senior years.
Or, to put it another way, by capping benefits for wealthy retirees, more of Social Security’s funding could potentially be reserved for lower-income seniors who need that money the most and truly can’t afford a benefit cut.
Will the proposal fly?
There’s an inherent problem with the Six Figure Limit, and it’s that it changes the very nature of Social Security. Social Security is not meant to be a welfare program. Rather, benefits are earned. And workers who pay more into the system are supposed to be rewarded with larger benefits.
The nonpartisan Senior Citizens League, for example, is opposed to the Six Figure Limit because it’s a targeted benefit cut. The group insists that there are other ways to address Social Security’s funding shortfall.
At the same time, something does have to be done to prevent broad Social Security cuts, and lawmakers don’t have a lot of time to act. Congress has other options for boosting the program’s funding, but taking benefits away from higher earners who have earned those larger monthly checks may not be the most effective way to go about it.
Broader proposals like raising the Social Security wage cap, boosting the Social Security tax rate, or raising Social Security’s full retirement age all seem to have more support than the Six Figure Limit. So while it’s too soon to write it off as a potential solution, at this point, it’s still very much just an idea.
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Maurie Backman has more than a decade of experience writing about financial topics, including retirement, investing, Social Security, and real estate. Her work has appeared on sites that include The Motley Fool, USA Today, U.S. News & World Report, and Kiplinger.
Prior to becoming a full-time financial writer, Maurie worked in the financial industry trading distressed debt. She then changed course and spent a few years designing electronic toys. After a stint in content marketing and UX, she shifted back into writing and has since covered everything from the housing market to estate planning to Medicare.
When she's not busy writing, Maurie can be found hiking, walking her dogs, driving her kids to their various sports practices and games, and curling up with a good book. She cooks on occasion and bakes way too often.
