Since 1997, Joe and Jill Biden have earned a combined income of at least $210,797 annually. In recent years, their combined yearly income has been much higher, totaling in the millions.
Since Social Security benefits are based on average wages earned over the course of your career, you may expect the Bidens to receive a small fortune in retirement checks, especially as Jill is 69 and Joe is 77. But if you're expecting them to be raking in the cash from this entitlement program, you'll probably be surprised to find out that together they received just $49,545 in Social Security benefits in 2018 (the most recent year for which tax returns are available).
Why did the Bidens get so little money from Social Security? There's one simple reason: Social Security is structured so it can't pay out sky-high benefits, no matter how much beneficiaries earn in their working lives.
The Biden's benefit checks show why you can't rely on Social Security
Under the current rules for Social Security, payroll taxes are collected only on a portion of total wages for high earners, although lower-income Americans pay taxes on all their earnings. Once you earn above a specific income threshold, called the wage base limit, you won't pay any more Social Security taxes. The wage base limit is $137,700 in 2020, so you won't pay into Social Security on anything you earn above that amount -- but any additional income you earn also doesn't count when your benefits are calculated.
Because of this, very high earners tend to get Social Security benefits equaling a very small fraction of their total annual earnings, while Social Security replaces around 40% of pre-retirement income for most retirees.
The wage base limit isn't the only reason rich retirees see smaller benefits relative to their pre-retirement salaries. The Social Security benefits formula is also progressive and entitles retirees who claim at full retirement age to receive benefits equaling:
- 90% of average wages up to a certain income level called a "bend point"
- 32% of average wages between a first and second "bend point"
- 15% of average wages above the second "bend point"
Average wages for this formula are calculated using inflation-adjusted wages in the 35 years when earnings were highest. Under this formula, Americans who earn below the first income threshold get more benefits relative to the amount they earned and paid in, while people like the Bidens, who are among the country's highest earners, get less.
It's also worth noting that Joe Biden has a plan to change the rules by imposing payroll taxes on earnings above $400,000, but not increasing benefits for those who pay extra. High earners subject to this tax will still see their benefits replace just a small portion of their pre-retirement income, and their benefits will be worth even less relative to the payroll taxes they paid.
To be clear, higher earners do get more benefits in terms of the dollar amount of their checks, both under the current system and under Biden's proposed change. And in fact, most people won't receive benefits as high as the ones the Biden's are receiving, since the average Social Security benefit is just $1,503 per month (or $18,036 per year) in 2020. But the design of the system means people who make a lot of money would see a much sharper decline in household income if they rely too much on Social Security as a source of income in retirement.
This almost assuredly won't be a problem for the Bidens, as they're earning millions and have other sources of retirement funds besides Social Security. But research from The New School shows that just over 25% of people with incomes above the Social Security wage base limit have no retirement savings at all. They could face a major financial shock if they don't turn things around.
And even if your income isn't above the wage base limit, it's still important to realize your benefits will not come close to allowing you to maintain the standard of living you enjoyed while working. If you don't want to see your quality of life fall dramatically upon retirement, you're going to need money from other sources besides Social Security.
While Joe Biden may get some of that extra income from a presidential salary if he wins the next election, most of us will need to rely on our savings to fund our retirement. After all, even the Biden's benefits -- after their decades of high income -- wouldn't be enough to cover what an average senior couple spends.