Earning $240,000 annually puts you in the high-income bracket, but when it comes to Social Security benefits, there’s a limit to how much of your income is considered. The Social Security Administration (SSA) uses an earnings cap to determine taxable income and benefit calculations, which means only part of your income will count. Here’s how Social Security benefits are calculated for high earners and what you can expect to receive in retirement.
How the Social Security earnings cap affects high earners
1. Annual Earnings Cap:
In 2025, the Social Security earnings cap is $168,600.
This means that regardless of your $240,000 salary, only the first $168,600 will be subject to Social Security taxes and used to calculate your benefits.
The remaining $71,400 ($240,000 – $168,600) is not considered for Social Security purposes.
2. Benefit Formula:
Social Security uses a progressive formula to calculate benefits:
90% of your first $1,115 in average monthly earnings.
32% of the portion between $1,115 and $6,721.
15% of earnings above $6,721, up to the cap.
This formula ensures that lower earners receive a higher percentage of their income as benefits compared to high earners.
3. Retirement Age Impacts:
The age you start claiming benefits significantly affects your monthly payments:
Early retirement (age 62): Payments are reduced by up to 30%.
Full retirement age (FRA): For those born after 1960, the FRA is 67.
Delayed retirement (up to age 70): Payments increase by 8% for every year you delay past FRA.
Estimating your benefits with a $240,000 salary
The Social Security Administration provides tools like the Quick Calculator and Retirement Estimator to help you calculate your benefits. Here’s how to use these tools effectively:
1. Enter Your Earnings:
For a $240,000 salary, input $168,600 as your covered earnings, as this is the maximum taxable amount.
If you’ve consistently earned at or above the cap throughout your career, your benefits will reflect this maximum level.
2. Choose a Retirement Age:
Benefits vary depending on when you choose to retire:
At FRA (67): Your monthly benefit could be approximately $3,700.
At age 70: Delaying retirement could increase your monthly benefit to about $4,600.
At age 62: Early retirement could reduce your monthly benefit to around $2,600.
3. Adjust for Inflation:
Use the calculator’s option to view benefits in inflated dollars to account for annual cost-of-living adjustments (COLAs).
Key considerations for high earners
1. Social Security Benefits Are Limited:
Even though you earn $240,000 annually, your benefits are based on the earnings cap, not your total income.
Social Security will replace a smaller percentage of your income compared to lower earners.
2. Supplemental Retirement Savings Are Crucial:
With Social Security covering only part of your needs, maximizing contributions to retirement accounts like 401(k)s, IRAs, and other investments is essential.
3. Spousal and Family Benefits:
High earners may qualify for additional spousal or survivor benefits, which can supplement your retirement income.
4. Medicare Taxes Still Apply:
Income above the Social Security cap is not taxed for Social Security, but it remains subject to Medicare taxes, including the 0.9% surtax for individuals earning more than $200,000.
5. Inflation Adjustments:
Social Security benefits increase annually based on COLAs. These adjustments ensure your purchasing power keeps pace with inflation.
Plan wisely for retirement
For individuals earning $240,000 annually, Social Security benefits will form only a small portion of your retirement income. By understanding the earnings cap and how benefits are calculated, you can make informed decisions about when to retire and how to claim benefits.
Pairing Social Security with robust personal savings and investments is essential for high earners. Use tools like the Social Security Calculator to estimate your benefits, and consult a financial advisor to create a comprehensive plan tailored to your retirement goals.
