Why Social Security is not a Good Deal. A Real-World Return-on-Investment Breakdown for High Earners

Every few years we hear warnings that the Social Security Trust Fund is "on the verge of bankruptcy." When I hear that, two thoughts immediately come to mind. First, if an attorney ran a client trust account the way Social Security is structured, they would be disbarred. Second, even setting solvency aside, I've long suspected that the return retirees receive on their Social Security taxes is far from optimal, especially for high earners.

That curiosity led me to start running real-world numbers instead of relying on talking points. What I discovered might surprise you: and it definitely explains why so many high-earning business owners feel like they're getting shortchanged by the system.

The Real-World Test: Setting Up an Apples-to-Apples Comparison

To make this analysis as fair as possible, I used very specific and conservative assumptions. Let's imagine a wage earner who hits the Social Security maximum taxable income every year for 35 years, starting at age 35 and working through age 70 (covering the period from 1991–2024).

From there, I compared two scenarios:

• Path A: What that worker would receive by claiming maximum Social Security benefits at age 70 and drawing them for 25 years

• Path B: What the same worker could generate if the employee-side Social Security tax (6.2%) were instead invested annually into a private retirement account growing at actual S&P 500 market returns

• Path C: What if we invested both the 6.2% employee portion AND the 6.2% employer match (12.4% total)

  
  

The results were eye-opening, to say the least.

Breaking Down the Numbers

The Social Security Scenario (Path A)

A worker who maxed out Social Security contributions for 35 years and claims benefits at age 70 in 2024 would receive approximately $5,100 per month, or about $61,000 annually. Over 25 years of retirement, that's roughly $1.525M in total benefits.

Sounds decent, right? But here's where it gets interesting.

The Private Investment Scenario (Path B)

If that same worker had taken just their 6.2% employee portion of Social Security taxes and invested it in an S&P 500 index fund each year, the results would be dramatically different.

You enter retirement (age 70) with an estimated $2.05M portfolio balance. In retirement, you withdraw $122,000 per year (I wanted to show what taking twice the SS benefit could look like) for 25 years, generating $3.05M of total retirement income. Even after those withdrawals, assuming 7% nominal growth (market has shown >13%, but for my example I wanted to be extremely conservative), the account still ends around $3.41M at age 95—meaning you still retained substantial wealth to leave when you pass.

The Full Investment Scenario (Path C)

Now here's where things get really interesting. If we could have invested both the employee and employer portions (the full 12.4%), which roughly doubles the starting retirement balance to $4.10M, but keeps the same withdrawal target ($122,000/year). Over 25 years you still withdraw $3.05M total, but because the portfolio starts much larger and compounds at 7% nominal, the ending balance grows dramatically, finishing around $14.54M at age 95. The key takeaway is that when contributions double, the wealth accumulation effect can be enormous—especially if withdrawals stay fixed.

Side-by-Side Scenario Snapshot (Age 70–95)

If you haven’t run these numbers for yourself yet, you’re not alone. To make it easy, here are the exact inputs we used and how the scenarios stack up. Breathe—we’ve got your back, and this is meant to clarify, not overwhelm.

Key inputs we used

• Social Security annual benefit at age 70 (for comparison): $61,000

• Private withdrawal multiple vs. SS benefit: 2.0x

• Private annual withdrawal (computed): $122,000

• Retirement duration: 25 years (age 70–95)

• Nominal return during retirement (assumed): 7.0%

• Dividend tax rate on qualified dividends (assumed): 15.0%

• Starting private balance at age 70 (EE 6.2% scenario): $2,050,000

• Starting private balance at age 70 (EE+ER 12.4% scenario): $4,100,000

• Last 10 years S&P 500 nominal total return geometric avg (2015–2024): 13.1% (for context)

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Scenarios at a glance

Scenario	Starting balance @70	Annual income (age 70–95)	Years	Total income (25 yrs)	Account value @95
Social Security benefits	-	$61,000	25	$1,525,000	-
Private retirement (6.2% EE)	$2,050,000	$122,000	25	$3,050,000	$3,409,854
Private retirement (12.4% EE+ER)	$4,100,000	$122,000	25	$3,050,000	$14,536,091

Friendly takeaways (what this means for you):

• The benefit gap for high earners is real: $122,000 vs. $61,000 per year. Over 25 years, that’s $3.05M from private withdrawals versus $1.525M from Social Security—about a $1.5M income delta.

• The legacy value is the jaw-dropper: even while paying yourself $122,000 per year, the account still grows to roughly $3.41M (EE 6.2%) or $14.54M (EE+ER 12.4%) by age 95. That’s a powerful cushion and potential inheritance.

  
  

If you haven’t built your own side-by-side yet, you’re not behind—we do this every day. Want to see your exact numbers (including your earnings history, tax picture, and risk preferences)? Reach out and we’ll run a personalized retirement scenario analysis so you can plan with confidence. We’re here to help.

The High Earner's Dilemma

Here's the uncomfortable truth for high earners: Social Security's benefit formula is deliberately designed to be less generous for you. The system uses a progressive benefit formula that gives lower-earning workers a higher percentage return on their contributions.

Why High Earners Get Less Bang for Their Buck

Once you hit the Social Security earnings cap (which many high earners do early in each calendar year), any additional income doesn't contribute to future benefits. It's like being forced to invest in a product with a built-in return ceiling.

For business owners and high earners, this creates a unique planning challenge. You're essentially paying into a system that's designed to provide a smaller relative return on your contributions compared to lower earners.

What This Means for Your Retirement Strategy

If you're a high earner, this analysis doesn't mean you should write off Social Security entirely. But it does mean you need to think about it differently.

Don't Count on Social Security as Your Primary Retirement Plan

For high earners, Social Security might replace only 10-15% of your pre-retirement income. That's very different from the 40% replacement rate that average earners can expect. You need robust additional retirement savings to maintain your lifestyle.

Consider the Timing Strategy

One area where you do have control is when you claim benefits. Delaying Social Security until age 70 increases your monthly benefit by about 8% for each year you wait past your full retirement age. That's a guaranteed return that's hard to beat in today's market.

Think About Tax Diversification

Social Security benefits can be tax-free, partially taxable, or fully taxable depending on your other income. For high earners with substantial retirement accounts, having some tax-free income from Social Security can be valuable for tax planning.

The Bottom Line for Business Owners

But if you're a high-earning business owner, you need to understand what you're really getting for your money. The return on your Social Security contributions is likely much lower than what you could achieve through other retirement savings vehicles.

What Should You Do?

Maximize Other Retirement Accounts First: Max out your 401(k), consider a SEP-IRA or Solo 401(k) if you're self-employed, and look into backdoor Roth conversions.

Consider Professional Planning: If you're dealing with significant income and complex tax situations, working with a financial advisor who understands high-earner challenges can help you optimize your entire retirement strategy.

You're already proving you can build wealth through your business success. Now it's just a matter of applying that same strategic thinking to your retirement planning. We're here to help you navigate those choppy waters and make sure you're maximizing every opportunity available to you.