Social Security and High Income Earners


Intro: Welcome to the Paragon Podcast. A podcast focusing on the needs of high net-worth individuals and their families. We discuss markets, tax strategies, and how to better manage wealth with the goal of living better for today while planning for tomorrow.

Hi everyone, this is Elean Mendoza and I’m here with Evan Shorten the firm’s founder and principal.

Hello. This is Evan and I want to thank you for tuning in. Before we get started, I would like to ask any listeners who haven’t subscribed if you could please support us by subscribing to the podcast. You can do so on your iphone via the Apple Podcasts app, on your android phone using Stitcher Radio, or by visiting YouTube and subscribing to the Paragon Youtube channel. Also, we’d really appreciate your support if you could please share this podcast with anyone who you think could benefit. One of our goals for this year is to grow our podcast and we can’t do it without your help.

Last week we discussed 6 myths and misconceptions about Social Security. Specifically, we discussed the following myths:

  1. Social Security will cover all of your retirement expenses
    2. Social Security only provides retirement benefits
    3. Social Security is not taxable
    4. If you earn income after you claim Social Security, you’ll lose your benefit
    5. Social Security is bankrupt; and lastly
    6. You can only receive Social Security benefits if you paid into the system.

It’s a really informative episode, and if you haven’t listened to it we encourage you to go back to it.

This week we wanted to build onto last week’s episode and in fact we almost made this the 7th myth and misconception about Social Security, but given our audience we figured it deserved an entire episode.

So today we want to discuss the misconception that high-income and high-net worth individuals don’t qualify for Social Security, or rather the belief that you made too much money to receive Social Security benefits.

So Evan, let’s start off by just answering the question. Is it possible that you can be phased out of receiving Social Security benefits because you made too much money during your lifetime?

No. In fact, as long as you meet the basic requirements for Social Security benefits you’ll be entitled to receive benefits regardless of how much money you made or how much money you saved.

I think the misconception stems from the mention of “means testing”. As we move closer to the possibility that Social Security may have to reduce benefits at some point in the future, one of the possible remedies often mentioned is means testing so that those with less means will receive a greater benefit than those with higher means. Generally, a lot of people assume such a policy might even phase out high-net worth individuals completely. But to be clear, that’s not actually the case and there is no means testing of Social Security at present time.

And just as a quick reminder, the most basic eligibility requirements for Social Security benefits are that you be at least 62 years old, for those who elect to take social security early, and that you contributed into Social Security via the FICA tax for at least 10 years – and no, those 10 years do not have to be consecutive.

So now that we answered the question about whether or not high-income earners and high-net worth individuals can receive Social Security, are there any limitations or caps on how much someone can receive in Social Security benefits?

In this case, yes there is a limit as to how much someone with a high income cam receive from Social Security. Generally, the more income you earn, means the more you pay into Social Security as its percentage based; and ultimately the more you pay into Social Security, the more you can expect to receive in retirement benefits.

The way the Social Security Administration limits how much you can receive is by instituting a cap on how much of your income can be taxed by Social Security. For the year 2021 the first $142,800 is subject to Social Security tax. Any amount beyond that is no longer taxed. The effect of capping taxable income at $142,800 is that you can then only receive a maximum Social Security benefit of $3,148 in 2021 assuming you retired at your full retirement age.

Now the other really important thing to discuss with respects to Social Security benefits and high-net worth individuals, specifically those with either a sizeable retirement account or those who receive passive income, is the taxation of your Social Security benefits. Could you go over how taxes impact Social Security?

Yes, the interesting thing about Social Security benefits is that while being a high-income earner or having a high-net worth doesn’t hurt your ability to receive Social Security, it does open up how much your benefit can be taxed – and these numbers are going to be a bit surprising for some.

If you’re retired, receiving social security, and you file your taxes as an individual, up to 50% of your Social Security benefit can be taxed if your combined income is between $25,000 and $34,000. If your combined income is more than $34,000, up to 85% of your social security may be taxable.

Now, if you’re retired, receiving social security, and file your taxes jointly with your spouse, up to 50% of your Social Security can be taxed if your combined income is between $32,000 and $44,000. If you’re combined income is more than $44,000, up to 85% of your social security benefit may be taxable.

And just to clarify a couple things, we’re not actually saying that 50% or 85% is going to be the tax rate on your social security. What we’re saying is that up to 50% of what you receive would be subject to taxes.

And the other thing that we really want to clarify is the term “combined income” which is unique to social security in how it’s calculated.

Yes, combined income is the total sum of your adjusted gross income, plus nontaxable interest, plus ½ of your Social Security Benefit. It’s unique in that it includes nontaxable interest. So if you have a portfolio with a heavy weight in municipal bonds to help reduce your taxable income, it doesn’t help you with respects to your Social Security benefits.

Ok. That almost wraps up this episode, but I do want to mention one last thing before we go. If you want to get an estimate of your Social Security benefit you can visit to create an account and view your estimate.

And of course you can also reach out to us with any questions you might have.

Ok, with that, thank you for listening to the Paragon Podcast. We really appreciate those who tune in and ask that you please spread the word to anyone who might benefit from this production to help us grow.

Until next time.

Author: Paragon Financial Partners

Paragon Financial Partners, Inc. is a Registered SEC Investment Advisor. The topics discussed herein are for informational purposes only and should not be considered as a solicitation or offer to purchase or sell any securities. The financial strategies and guidelines discussed herein may not be appropriate for everyone as each individual circumstance is unique. Please review all tax information with your tax professional. Please review all legal information with your legal professional. If you have any questions or would like to speak with us, please contact us by phone at (310) 557-1515 or by email at