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Why do the Rich get a Bigger Social Security Payment? - Yahoo! Finance

“The rich get richer” is somewhat of a common lament by those not enjoying financial freedom, which likely includes most of those collecting Social Security benefits. Indeed, a majority of Social Security beneficiaries say they rely on their SS benefit as a “major” part of their retirement income – they need their Social Security payment to make ends meet. But at the same time it’s true that higher earners generally enjoy a bigger monthly Social Security check than the large majority of beneficiaries. While that may seem unfair, let’s look into why that is the case.

Social Security benefits are determined using each person’s lifetime earnings history. The SS benefit formula is actually weighted in favor of lower income workers, replacing a higher percentage of their pre-retirement income than for higher income workers. But even though higher earners have a smaller percent of their pre-retirement income replaced, because their earnings are so much higher they receive a corresponding higher dollar amount for Social Security. Thus, their higher earnings – and their related greater contributions to the Social Security program – yield a higher monthly benefit amount.

Under current law, everyone who works and earns (except certain state & local government employees) must contribute a percentage of their earnings to Social Security, and those contributions are used to help pay benefits to those receiving SS at the time. Social Security sets a “payroll tax cap” each year ($168,600 for 2024) from which Social Security FICA (or SECA self-employment) tax is paid. But when those workers later retire and claim Social Security, it’s not the amount of their contributions which determine their benefit amount; rather it is their average monthly earnings over their lifetime. So those with higher average monthly lifetime earnings get a correspondingly higher Social Security benefit (albeit one which replaces less of their pre-retirement income). In other words, as explained in this Yahoo! Finance article by Christy Bieber, the rich do get a higher benefit amount, but they’ve also earned it by paying more into Social Security from their higher earnings.

If you’re unsure about how these basics apply to you, or if you have any questions about your individual situation under Social Security, note that the AMAC Foundation provides a free-to-the-public advisory service to help Americans navigate the complexities of this program. All questions are answered quickly, at no charge. Learn more about it here…

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