Social Security: Often Misunderstood

The Social Security program is complex and often misunderstood. If you work and receive a paycheck, you understand that you are paying into the system because you see the deduction from your wages. Those tax payments are then used to pay other people who are receiving benefits.  In 2025, employees pay 6.2% of the first $176,100 of their wages.   The amount of income that is taxed has increased each year. For example, that number is up from 2024, where $168,600 was subject to social security tax.  In 2023, it was $160,200, up from 2022, when it was $147,000.  In 2021, workers were taxed on the first $142,800 of wages, which was up from 2020 at $137,700.   Overall, that is a 27.9% increase on the amount of wages subject to social security tax, from 2020 to 2025. 

Employers must pay a matching amount, an additional 6.2%, for a total of 12.4% on the wage base. For those of us who are self-employed, we pay the whole 12.4%. For example, if you make $176,100 or more in 2025, you will pay $10,918 in social security taxes and your employer (who is you if you are self-employed) also pays another $10,918. That’s a total of $21,836. Throughout the decades the social security tax paid on earned income has also risen substantially, with the total percentage of tax paid by the employer and employee increasing by over 500% since 1951:

1951   2.25%

1960   4.50%

1970   6.3%

1980   7.05%

1990   12.4%, where it has remained since.i 

The maximum retirement benefits for new recipients in 2025 are as follows:

$2,831 / mo ($33,972/year) at age 62

$4,403 / mo ($52,836/year) at age 67

$5,108 / mo ($61,296/year) at age 70 ii

A couple both receiving max benefit at age 67 would collect $105,672 this year, while a couple both earning the max benefit at 70 would take home $122,592 in social security income. The estimated average benefit paid to retired workers in 2025 is $1,976 per month. iii

Go to ssa.gov to find your statement. It clearly shows what you and your employers have paid into the system. It also shows an estimate of what you’ll receive when you begin claiming your benefit. A bit of math will tell you your “break even”, the point when you’ll get more out of the system than you’ve paid in. This often surprises people and is one of the aspects of social security that is often misunderstood.

i. Social Security Tax Rates (ssa.gov) www.ssa.gov/OACT/ProgData/oasdiRates.html

ii. Maximum-taxable benefit examples (ssa.gov)

iii  www.ssa.gov/news/press/factsheets/colafacts2025.pdf

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. 

 Schulfer & Associates Wealth Management LLC and LPL Financial are not endorsed by or affiliated with the United States Social Security Administration or any government agency.