New proposal would cap Social Security benefits at $100K for wealthy couples

Social Security is facing the threat of insolvency in less than a decade, and a new proposal would cap the amount of Social Security benefits that a couple could receive each year at $100,000.

The aging of America's population is draining the balance of Social Security's main trust fund, which is projected to be depleted in 2032. Funds for Social Security benefits are drawn from the trust fund along with payroll taxes, and they would be automatically cut by law at the time of insolvency to match incoming revenue, reducing benefits by an estimated 24% across the board.

The nonpartisan Committee for a Responsible Federal Budget (CRFB) launched a Trust Fund Solutions Initiative to explore options for improving Social Security's solvency, with one such proposal capping six-figure benefits to the wealthiest couples.

The Six Figure Limit (SFL) proposal would put in place a $100,000 cap on the total benefit a couple retiring at the normal retirement age can receive, with adjustments based on marital status and claiming age. For single retirees, the limit on Social Security benefits would be $50,000.

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CRFB noted that while only a small fraction of retirees is receiving $100,000 in Social Security benefits as a couple or $50,000 as an individual, such figures will become more common over time as Social Security's benefit formula changes.

The SFL would cap Social Security benefits such that no couples collecting benefits at their normal retirement age could claim retirement benefits greater than $100,000 per year.

It would also adjust the limit based on marital status and the age at which they begin receiving benefits. A couple who delayed collecting benefits as long as possible until age 70 would have a $124,000 limit, whereas a couple who started collecting benefits as early as possible at age 62 would have a $70,000 annual limit.

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CRFB worked with Jason DeBacker of the Open Research Group to model a trio of options, including a $100,000 limit indexed to inflation, a limit frozen at $100,000 for 20 years and then indexed to average wage growth and a limit frozen at $100,000 then indexed to average wage growth after 30 years.

It found that the inflation-indexed SFL would save $100 billion over 10 years, while closing 20% of Social Security's 75-year shortfall and 55% of the shortfall in the 75th year. 

Both the 20- and 30-year fixed limit before indexing would save $190 billion over 10 years, and while the 20-year proposal would close 25% of the shortfall, the 30-year option would close 55% of the 75-year shortfall and 60% of the shortfall in the 75th year.

"Although the SFL would not significantly delay the date of insolvency of the Social Security trust funds on its own, it could meaningfully delay insolvency in combination with other reforms," CRFB wrote. 

It added that the 20-year SFL would delay insolvency by seven years in conjunction with an employer compensation tax, while the 30-year SFL with an employer compensation tax would permanently restore solvency for 75 years and beyond.

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The analysis found that the SFL would affect only the top 0.05% of couples in the early years of its implementation who have benefits over $100,000 and total average retirement income over $2.5 million per year, with an average net worth above $65 million.

Over time, more retirees would be affected by the SFL, with the top 1% of couples receiving 5% less in benefits on average by 2030 with no impact on the bottom 90%. That would shift to a 7% benefit reduction in 2040 for the top 1% and no impact on the bottom 80%; and to a 24% benefit reduction for the top 1% in 2060 with no impact on the bottom 70% of households.

Senior advocacy groups have expressed skepticism of proposals that could reduce the Social Security benefits received by Americans.

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"Proposals that focus on capping Social Security don't address the problem in front of Congress: ensuring every American gets every dollar they have earned," said Jenn Jones, AARP's VP of financial security and livable communities. 

"What's worse, ideas like this risk becoming a backdoor to broader cuts. AARP urges policymakers to focus on bipartisan solutions that protect and strengthen Social Security, not cut it."