January 18, 2013

Maximum Lifetime Social Security Taxes at $141,067

I just saw another person comment on the internet saying something along the lines of "I've paid more to Social Security than I'll live long enough to get back" and this was from someone who is currently 60.    Some people have this idea that they've paid some sort of giant kings ransom into Social Security.   However the maximum anyone has paid is not as high as you might think.

The maximum amount anyone could have theoretically paid into Social Security is $141,067.  

That number assumes someone worked for 76 straight years paying the maximum amount which is not really feasible. 

If you worked the past 47 years at maximum income then your total Social Security taxes paid would add up to $138,961.

Thats a little closer to feasible but still unlikely that anyone would have a 47 year long uninterrupted work history starting at age 18 and making the maximum income.    But there are probably 1 or even 2 people in the entire country who have paid that much due to some odd circumstances.

You can figure the maximum Social Security tax paid simply by multiplying the social security tax rate over the years by the maximum income.   For example back in 1937 the tax rate was 1% and the maximum income was $3,000 so the maximum anyone paid was $30 or in 2008 the rate was 6.2% and the max income was $102,000 so the max tax was $6,324.   Note that I figured in the 2% payroll tax cut for the 2011 and 2012 years.

That persons lifetime maximum income would sum up to $2,489,900.    They would have paid 5.67%  of that into Social Security.    They would be eligible for the maximum Social Security benefit which would be $2,513 per month or $30,156 per year.    If they live just 5 years they'll get all their money back and then some.   Everyone else would have a shorter pay back period.  Thats because the maximum income level has the least generous benefit rate. 

Of course I'm not talking about inflation impact or the return of investment of the money.  I'm simply looking at the nominal value of the taxes paid.

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4 comments:

  1. Yeah, no way that happened - unless someone dies within a few years of retiring! Although, a fair argument could be made for approximately doubling that to consider the employer contributions - that money wouldn't have been contributed had you not been working.

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  2. I can think of a theoretical scenario where someone might pay the maximum to SS. You are in a family business and when you turn 18 your parents make you vice president with a generous salary. You 'work' in that business your whole life and get a high salary the entire time. With >300 million people in the US its probably happened once or twice.

    There are probably some sports figures who've paid max SS their whole lives. They go from being pro athletes in their early years to being coaches the rest of their lives and make high W2 incomes the entire time.

    Jim

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  3. Great post, I also saw that claim and scoffed at the self-righteous ignorance. There is an average 'tipping point', however, and it falls right at those who retire right around now in 2013 (at age 65). The claim also is based on including the matching 6.2% from the employer, thus doubling the direct W-2 SS tax.

    Bottom line: this is a tax, not an investment. Those crybabies who compare what they 'would have' made in a CD make me ill. And the low-income workers actually get the best return-per-dollar-paid-in, because it is a progressive benefit. More info on the web, here is a good place to start...http://finance.yahoo.com/news/social-security-not-deal-once-165406538.html

    Keep up the great work, Jim.

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  4. PK & JayCeezy,

    You are both right that I did not include the employer share of the tax. I was only discussing the tax paid by the employee.

    Jim

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