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Social Security Wage Base Now at $102,000
By JLP | January 9, 2008
It just keeps going up…
Last year (2007), the social security wage base—the amount of income that is subject to social security tax—was $97,500. For 2008 it is $102,000. Dollar-wise, here’s what it looks like:
For 2007: $97,500 × 6.2% = $6,045
For 2008: $102,000 × 6.2% = $6,342
or, it’s 12.4% if you’re self-employed.
Anyway, it works out to an increase of $297 or $594 if you’re self-employed.
Just wait,… with all the Baby Boomers retiring over the next decade, I wouldn’t be surprised if both the rate and the amount subject to taxation goes up.
I have never run the numbers but I have to wonder what the chances are of my wife and I ever receiving back what we paid in? When you consider the fact that $6,342 growing at 8% per year would be worth nearly $64,000 in 30 years, I would have to say it’s not likely that we’ll reap what we sow.
If you’re interested, you can read more about the changes SSA.gov.
Topics: Social Security | 24 Comments »
January 9th, 2008 at 7:21 pm
Social Security isn’t an investment. It’s insurance.
January 9th, 2008 at 7:44 pm
It is very possible to get back what was paid in. I ran the numbers using the SSA calculator (see link)
http://thefinancialengineer.blogspot.com/2007/12/are-we-under-estimating-social-security.html
and was surprised to find that it would only take 5.6 years with inflation factored in to recoup. Of course, as you mentioned this discounts any investment gain from that money.
January 9th, 2008 at 9:06 pm
SS is neither an investment nor insurance. It’s a tax, part of which is used to pay seniors. The rest of it goes in the general fund. (There is a mythical “trust fund”, but that’s an accounting device that lets SS draw out of the general tax pool at some future date, probably about 2015 or so.)
Having been self-employed, I don’t accept the logic of the “employer share”; both sides of social security are part of my compensation as far as my employer’s concerned, so I’m paying both of them.
So, the reality is you should take your SS payment and double it if you’re a W2 employee.
January 9th, 2008 at 11:03 pm
Andy Said:
“Social Security isn’t an investment. It’s insurance.”
That’s some expensive insurance.
January 10th, 2008 at 5:12 am
“That’s some expensive insurance.”
May be, but it’s saving millions of people from abject poverty.
I believe you understand what it is, but many people think of SS as a savings plan of some sort. It is not. It’s an income redistribution system and it reduces inequality. An unequal nation isn’t good for democracy, in my opinion.
January 10th, 2008 at 6:27 am
Did you mean $640,000 instead of $64,000 for the amount that $6,342 would be after 30 years of 8% return?
January 10th, 2008 at 7:26 am
Ryan,
No, I meant $64,000. That’s how much one-year’s social security tax would grow to over 30 years. The math:
$6,342 × 1.0830
January 10th, 2008 at 8:25 am
Did anyone catch the new disclaimer in your Social Security Benefits Summary? In bold text that is easy to miss there is a disclaimer that states after a certain date (2015 I believe) the SSA will only be able to pay out 75% of benefits.
I’m not exactly happy paying into a program that will not be able to provide the same benefits when I retire as it does now. Not that I plan on relying on Social Security, I just feel that the program should have been revisited from time to time to make sure it could continue to provide the services it was created for.
January 10th, 2008 at 11:11 am
“I wouldn’t be surprised if both the rate and the amount subject to taxation goes up.” the taxable amount is the cap. this is part of what warren buffet was talking about when he said his maid paid as much tax as him. i.e. he’s not social security taxed on any income above $97,500. clinton or obama will raise this cap in their first week in office. guesses are to $150k initially.
January 10th, 2008 at 12:59 pm
I’d have to agree with the camp that says it’s pure income redistribution. However, instead of redistributing from rich to poor, its simply redistributing from young to old.
Where is the logic in that??? Old people are not necessarily poor. While I’m glad my Mom gets SS benefits (otherwise I’d probably be kicking in the difference), I’m not so sure my millionaire in-laws need it (though I suppose it allows them to hang onto more their own savings which will eventually get passed down to us young-uns).
January 10th, 2008 at 1:53 pm
Miguel,
That’s what makes social security so silly. Why not make it a much lower tax but only give benefits to those who actually need it? Wouldn’t that make it more of a safety-net?
Social Security along with the minimum wage were simply political tools to get votes.
January 10th, 2008 at 3:19 pm
Since the poor generally have shorter lifespans than everyone else, Social Security might redistribute income from the poor to everyone else.
January 10th, 2008 at 4:20 pm
@JLP – My sentiments exactly. If we need a program to support the impoverished elderly, then let’s make it a welfare tax for the aged w/need-based benefits. That is something I could feel a whole lot better about paying.
@Min Wage – Now that is harsh (but quite possibly true).
January 10th, 2008 at 4:31 pm
8%??? You have to account for inflation too.
January 10th, 2008 at 4:41 pm
Lord said:
“8%??? You have to account for inflation too.”
I thought 8% was a nice number. Regardless, even after accounting for inflation, I could still do better on my own than with Social Security. Besides, at my age (38) I bet the full retirement age will move past 70 by the time I’m ready to retire.
January 10th, 2008 at 4:43 pm
Minimum Wage,
I have no idea whether or not that’s true. Keep in mind that the “rich” have to pay taxes on their Social Security income.
January 10th, 2008 at 6:44 pm
Social Security is a huge unsustainable scam and all of the patches (e.g. raising taxes, raising the wage base, raising retirement age, taxing benefits) have kept it afloat without helping anybody.
January 11th, 2008 at 1:25 am
MW’s point is one of the best arguments for a “personal accounts” as at least a component of SS. Unlike SS, which disappears into the ether when you die, a personal account could be passed on to your heirs.
January 11th, 2008 at 8:49 am
People always forget when we discuss SS we’re also talking about a disability & survivor benefit plan, not just a retirement program. So when you compound interest, subtract enought to cover a long term disability program and survivor benefits for the kids.
It’s interesting to me where in one week you post an article about someone getting scammed out of their retirement money and the next week we’re talking about privatizing SS.
Let me guess, Merrill Lynch wants to take care of everyone’s investment accounts.
January 11th, 2008 at 8:57 am
Ernesto said:
“People always forget when we discuss SS we’re also talking about a disability & survivor benefit plan, not just a retirement program. So when you compound interest, subtract enought to cover a long term disability program and survivor benefits for the kids.”
That’s a good point.
“It’s interesting to me where in one week you post an article about someone getting scammed out of their retirement money and the next week we’re talking about privatizing SS.”
My post about people not getting scammed wasn’t a call for government-sponsored plans.
January 11th, 2008 at 2:07 pm
I’d rather have the private sector managing a retirement fund instead of Nancy Pelosi. In practice, I’d guess that retirement funds of this sort would have to be very broad-market index funds like S&P 500 or Russell 2000 funds, or indexed lifecycle funds like the Vanguard funds VTHRX, etc.
Anything more specific than that and you end up with a ton of market volatility and political dangers similar to other “sovereign wealth funds”; any SS fund would rapidly have trillions of dollars in it and would be ripe for Congressional monkey business if it isn’t very broad, general, and tightly scrutinized. But it’s better than just tossing the money into the general fund so Congress can spend it on teapot museums and bridges to nowhere.
November 25th, 2008 at 9:38 am
Fools.
“MW’s point is one of the best arguments for a “personal accounts” as at least a component of SS. Unlike SS, which disappears into the ether when you die, a personal account could be passed on to your heirs.”
“8% Growth.”
This entire conversation is obsolete.
Personal accounts sound like a great idea. So does 8% growth. Personal bailouts are going to be all the rage.
November 25th, 2008 at 2:07 pm
Oh and Comcast, the lumbering cable giant, continues to jack my bill sky high.
In 2009 your Comcast bill is likely the only place you’ll see 8% growth…if it isn’t more.
“Pay us more! more! more! for less! less! less!”
No thanks.
December 4th, 2008 at 3:16 pm
I think that raising the base rate makes the most sense. There are a lot of good points that have been said. This is not a retirement fund it was merely created for insurance and making the old age/disability have a source of income. Today it is view of as a retirement fund so privatizing it or allowing personal accounts is making more sense to the general public. Sure, the government has done a subpar job at running the circus, but it is doing what it was intended.
I read on the AARP’s website that social security make up 2/5-3/5′s of some people’s “retirement income”. That is a staggering amount and must be considered when Congress finally re-evauates the program.