Even the richest Americans can qualify for Social Security retirement benefits
Matthew Frankel| The Motley Fool
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The short answer is yes. Even though they don't need the extra income, billionaires can qualify for Social Security benefits when they reach age 62, and many of the richest Americans are currently collecting a monthly Social Security check. However, since Social Security benefits are capped, billionaires don't receive much more from the Social Security Administration than most middle-class Americans.
Some billionaires might not qualify for the maximum, or any benefit at all
One key point to be aware of is that Social Security retirement benefits are based on yourearned income, such as wages from a job. Many of the wealthiest Americans get their income from passive business activities, or from dividend income on their investments, which is not counted for Social Security purposes.
- To qualify for a Social Security retirement benefit, you need a minimum of 40 quarters (10 years) of earned income from a covered occupation. To get the maximum possible Social Security benefit, you must have earned the maximum amount of income that's subject to Social Security taxes for at least 35 years. (In 2017, for example, you'd have to earn the maximum taxable amount of $127,200.)
What this means is that if a billionaire inherited their fortune, and their only income source has been investment income, they may not qualify for any Social Security benefit at all.
As another example, let's say a self-employed entrepreneur worked for 15 years and then sold his or her company for several billion dollars and never worked again. This person would likely be eligible for a Social Security benefit, but with only 15 years of earned income on their record, they'd likely get far less than the maximum benefit.
What's the maximum Social Security benefit?
Having discussed the reasons some billionaires might not qualify, let's take a look at how much a wealthy retiree might get from Social Security if theydidqualify.
As I briefly mentioned earlier, Social Security retirement benefits are calculated based on 35 years of earnings. Specifically, the SSA looks at your income in the 35 highest-earning years of your career (capping the figures at the maximum taxable amount for each year and adjusting them for inflation). Then it takes the average of those 35 adjusted income figures and divides it by 12 to produce your "average indexed monthly earnings," or AIME.
Your AIME is then plugged into a formula to determine your primary insurance amount -- that is, the monthly benefit you'll be eligible to receive at your full retirement age. As of 2017, a retiree's primary insurance amount is determined by adding up the following:
- 90% of the first $885 in AIME
- 32% of AIME between $885 and $5,336
- 15% of AIME above $5,336
I'll spare you the mathematics of calculating the highest possible Social Security benefit: At full retirement age, the maximum benefit is $2,687.However, since you can earn a delayed-retirement credit of 8% per year for waiting, until as late as age 70, people reaching this age now can get a maximum benefit of $3,547 per month. That would be a nice permanent monthly paycheck for the average American, though it's unlikely to make much of a difference for a billionaire.
To sum it up
The bottom line is that while billionaires can qualify for Social Security, they must have earned income for a minimum of 10 years -- not just passive sources of income such as investments. And unless they earned more than the Social Security taxable maximum in each of 35 years, they'll receive less than the maximum possible retirement benefit, which is currently $2,687 per month at full retirement age.
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