Social Security: Often Misunderstood

The Social Security program is complex and often misunderstood. If you work and receive a paycheck, you understand that you are paying into the system because you see the deduction from your wages. Those tax payments are then used to pay other people who are receiving benefits.  In 2023, employees pay 6.2% of the first $160,200 of their wages.   The amount of income that is taxed has increased each year. For example, that number is up from 2022, when it was $147,000. In 2021, workers were taxed on the first $142,800 of wages, which was up from 2020 at $137,700. Employers must pay a matching amount, an additional 6.2%, for a total of 12.4% on the wage base. For those of us who are self-employed, we pay the whole 12.4%. For example, if you make $160,200 or more in 2023, you will pay $9,932 in social security taxes and your employer (who is you if you are self-employed) also pays another $9,932.  That’s a total of $19,864. Throughout the decades the social security tax paid on earned income has also  risen substantially, with the total percentage of tax paid by the employer and employee increasing by over 500% since 1951:

1951   2.25%

1960   4.50%

1970   6.3%

1980   7.05%

1990   12.4%, where it has remained since

The maximum retirement benefits for new recipients in 2023 are as follows:

$2,572 / mo ($30,864/year) at age 62

$3,808 / mo ($45,696/year) at age 67

$4,555 / mo ($54,660/year) at age 70 ii

A couple both receiving max benefit at age 67 would collect $91,392 this year, while a couple both earning the max benefit at 70 would take home $109,320 in social security income. The average benefit paid to retired workers in 2023 is $$1,688.69 per month.

Go to ssa.gov to find your statement. It clearly shows what you and your employers have paid into the system. It also shows an estimate of what you’ll receive when you begin claiming your benefit. Simple math will tell you your “break even”, the point when you’ll get more out of the system than you’ve paid in. This often surprises people and is one of the aspects of social security that is often misunderstood. 

LouAnn Schulfer of Schulfer & Associates, LLC Wealth Management can be reached at (715) 343-9600 or louann.schulfer@lpl.com TheWealthInformationLady.com  SchulferAndAssociates.com , or louann.biz

i. Social Security Tax Rates (ssa.gov)  www.ssa.gov/OACT/ProgData/oasdiRates.html

ii. Maximum-taxable benefit examples (ssa.gov)

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. 

Schulfer & Associates, LLC Wealth Management and LPL Financial are not endorsed by or affiliated with the United States Social Security Administration or any government agency.