Money Girl

Should I Be Worried About Social Security?

Episode Summary

In another special Friday BONUS episode, Laura answers a listener’s question about Social Security retirement benefits and the future of the program.

Episode Notes

In another special Friday BONUS episode, Laura answers a listener’s question about Social Security retirement benefits and the future of the program. 

Money Girl is hosted by Laura Adams. A transcript is available at Simplecast.

Have a money question? Send an email to or leave a voicemail at 302-365-0308.

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Episode Transcription

Welcome back to another special Friday edition of Money Girl where I answer your burning money questions! We’re trying to come up with a catchy name for it, like Finance Fridays. Please send me a note if you have a good idea!

I'm Laura Adams, an author, financial spokesperson, speaker, founder of The Money Stack newsletter, and host of the Money Girl podcast with 43 million downloads. 

Today’s question comes from Laura in Oregon who’s been a podcast listener since 2012. She says, “I turn 62 this year and am paying more attention than ever to Social Security and am concerned about its solvency. My question concerns the Social Security tax, which gets applied to earnings up to $168,600. Would it be reasonable for the tax to also get applied to other types of income, like passive income and capital gains?”

Thanks for your question and being a long-time listener, Laura! I’ll review how the Social Security retirement benefit works and what’s likely to happen to the program. Even if you’re nowhere near retirement age, getting familiar with Social Security is smart because it should play a significant role in your financial planning.

If you have a question you'd like me to cover on a Friday Q&A show, please leave it on our voicemail line at 302-364-0308. You can also send me an email using my contact page at

What is Social Security?

Social Security is a U.S. federal program, created in 1935 to provide financial assistance to qualifying citizens who are retired, disabled, or survive a relative who received benefits. It was amended to include disability insurance, supplemental income, and Medicare benefits. But I’ll just focus on the retirement portion here.


According to the Social Security Administration, “... benefits are now expected to be payable in full on a timely basis until 2037, when the trust fund reserves are projected to become exhausted. Thus, the Congress will need to make changes to the scheduled benefits and revenue sources for the program in the future.” So, because of that reality, many people like Laura are concerned about what’s going to happen to the program.

Who qualifies for Social Security retirement benefits?

To be eligible for Social Security retirement benefits you must work and pay into the system for at least 40 quarters or 10 years. That’s because the program gets funded from payroll and self-employment (SE) taxes

If you’re an employee, you’ve probably seen the deduction listed on your pay stub as OASDI, which stands for old-age, survivors, and disability insurance. But if you work for yourself, you must pay self-employment taxes, which are similar to the Social Security and Medicare taxes withheld from most workers’ paychecks.

But not everyone pays into the Social Security system. For instance, there are millions of state and local government workers, like teachers, police officers, and firefighters, who qualify for a pension from their government employer, instead of paying into and receiving Social Security retirement benefits.

How much is the Social Security tax?

Laura mentioned the Social Security tax, which applies up to an annual income limit, called the wage base. It’s gradually increased over time but is $168,600 for 2024. 

If you’re an employee, you pay 6.2% of earnings on up to $168,600. Plus, your employer pays an additional 6.2% on your behalf for a total tax of 12.4%. So, the maximum an employee could pay is $10,453.20.

If you’re self-employed, you pay both the employer and employee tax or 12.4% on earnings up to $168,600. Therefore the maximum Social Security tax you could pay for business income in 2024 is $20,906.40.

However, as the Social Security reserve fund draws down, it’s likely that the wage base and tax rate will need to rise to give the federal government enough revenue to keep the program healthy. Projections for 2025 hike the wage base to $174,900 and for 2026 to $181,200. 

Laura asked about the possibility of the government also taxing other types of income, like capital gains, to shore up the Social Security program. While it’s always possible, I don’t think that would be the best solution. 

The idea is that workers and business owners pay into Social Security based on their incomes and then receive benefits based on their history of earnings. Most workers have no capital gains because they invest through tax-advantaged retirement accounts and typically qualify for an exclusion of capital gains on their home sales.

I think it’s more likely that we’ll see the Social Security wage base continue to rise annually. We’ll probably also see the tax rate of 6.2% increase in future years. Plus, the full retirement age has been slowly rising, which is another lever the government can pull to help the Social Security system.

Additionally, retirees who earn over an annual threshold pay taxes on a portion of their retirement benefits, which I’ll discuss in a moment. That, and perhaps a combination of these solutions will get adopted to keep the program solvent. 

How much Social Security retirement income do you get?

It’s important to remember that Social Security was created to be a safety net or supplement, not the sole source of Americans’ retirement income. The average monthly benefit for January 2024 was about $1,900. For a comfortable retirement, you likely need several other sources, such as savings, investments, or a workplace pension.

Since your future Social Security benefits play a significant role in your retirement, I recommend regularly reviewing your reported earnings for errors. You can visit to sign up for an online account, check your earnings history, and see your estimated future retirement income and other benefits. Any mistakes in your Social Security record could keep you from getting all the benefits you’re entitled to.

Your estimated retirement benefit is based on the average of your highest 35 years of earnings. If you work fewer than 35 years, the missing ones get counted as $0 income, bringing down your average. And if you work over 35, only your highest-earning years are included in the benefit calculation. So, how long you work and much you earn throughout your career plays a huge role in your retirement benefit. 

When can you claim Social Security retirement benefits?

Laura mentioned that she’s 62, which is the youngest age you can claim retirement benefits. But the longer you wait, up to age 70, the higher your benefit will be.

Everyone has a "full retirement age" or FRA when you can first claim full or unreduced benefits. For instance, if you were born between 1937 and 1959, your FRA is 66. But if you were born in 1960 or later, your FRA is 67. 

If you claim benefits before your FRA, your benefits get permanently reduced. According to the Social Security Administration, if you claim early retirement at 62, your benefit would be about 30% lower than if you started at your FRA of 67. And if you're wondering what the maximum retirement benefit could be, it was about $4,500 a month last year.

If you delay benefits past your FRA, they increase 8% per year up to age 70. So, if you're in good health and can continue working, or have other income sources, waiting to claim retirement benefits is an easy way to boost your lifetime income. 

There are many factors to consider when deciding when to start retirement benefits, such as your income sources, life expectancy, and spouse's situation. So always get personalized advice from a financial advisor for help making the best decision.

Do family members get Social Security retirement benefits?

In addition to receiving your own retirement benefits, your spouse and any ex-spouses you were married to for at least ten years are entitled to 50% of your benefit, even if they never worked. You must be at least 62 and already receiving benefits or deceased for a spouse or ex-spouse(s) to be eligible for benefits based on your work history.

For example, if you already receive $1,000 in monthly Social Security retirement benefits, each current and previous qualifying spouse would receive $500–unless they're eligible for their own, higher retirement benefit.

Are Social Security retirement benefits taxable?

Another good reason to delay taking retirement benefits, especially if you’re still working, is that you may owe income tax on them if your “combined income” exceeds certain thresholds. Your combined income is the total of your gross income, tax-free interest, and 50% of your Social Security benefits. 

If you’re a single taxpayer with combined income between $25,000 and $34,000, you may have to pay income tax on up to 50% of your retirement benefits. If you earn more, up to 85% of your benefits may be taxable. 

If you’re married filing a joint tax return and you and your spouse have a combined income between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits. Earning more means up to 85% of your benefits may be taxable.

In the future, it’s possible that up to 100% of retirement benefits could be taxable or that the wealthiest retirees could be taxed more to bring additional revenue into the Social Security system. So, you can see there are many potential ways to keep the system solvent, depending on what changes Congress is willing to make.

Thanks again to Laura for sending in the question. Remember to send in your money question so I can cover it on the show!

That's all for now. I'll talk to you soon. Until then, here's to living a richer life!

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