Social Security retirement benefits are available to everyone who works for a sufficient number of years, regardless of whether they're high or low earners. And these benefits are earned, which means you only get them if you pay into the system that funds them. 

But, despite the fact Social Security is a universal benefit, it actually helps out typical Americans more than the rich when it comes to being prepared for retirement.

Here are two big reasons why this program is so much more beneficial to the average person than to someone who has a very high income over the course of their career. 

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1. Social Security's benefits formula is progressive  

The first big reason why typical Americans get more help from Social Security is because the program is designed that way. Benefits are based on a percentage of average wages earned in the 35 highest-earning years of your career. And lower earners get benefits equaling a higher percentage of those wages since the Social Security benefits formula is progressive. 

The benefits formula entitles retirees to a standard benefit equaling:

  • 90% of average wages up to a specific income threshold
  • 32% of average wages between the first threshold and a second threshold
  • 15% of average wages above the second threshold

The income thresholds are called "bend points." They change each year. While this may seem confusing, the bottom line is, if your career-average income is below that first threshold, Social Security benefits will equal 90% of it. But as soon as your average earnings rise above it, Social Security starts to replace a smaller and smaller portion of the income you made.

Higher earners will see a significant amount of their income above these first and second bend points, but lower earners won't. 

2. High earners don't get benefits based on all of their earnings

The second reason Social Security doesn't help wealthy people as much is because not every dollar of their earnings necessarily counts when their benefits are calculated.

Each year, the Social Security Administration sets a taxable maximum wage. Every dollar below it is counted when the SSA records your wages for the year. But, if you earn more than the taxable maximum, anything above it doesn't count in your average. In 2022, for example, the taxable maximum wage will be $147,000. If you earn $157,000, you will only get credit for $147,000 in earnings. Your average wage for the year that's recorded by the SSA won't be a true reflection of the full amount you earn.

Now, you also won't pay Social Security taxes on that extra income above the maximum taxable wage. But, since it can't raise the average wages used to determine your monthly benefit, you end up with a benefit that replaces much less of your total income than someone who had all of their earnings counted. 

This is why, while Social Security benefits replace about 40% of pre-retirement earnings on average, lower earners generally see a slightly higher replacement rate while higher earners see a lower one. Social Security won't help these wealthy Americans as much because it will provide them with less retirement income relative to what they earned on the job, so they'll need to save more. 

No one at any income level should count on Social Security to fully fund their retirement. But if you're earning a hefty salary, you'll need to be aware that your benefits won't do as much for you as someone who earns less. You should step up your efforts to grow a nest egg that provides plenty of supplementary funds to live on in your later years.