Ramit Sethi Says This is the First Step to Fixing Social Security

Social Security is a critical income source for many seniors, with the Social Security Administration reporting that these benefits account for around 31% of all income received by people over the age of 55. For around 39% of men and 44% of women 65 and over, benefits actually account for even more — about half their income. 

Since so many seniors are reliant on retirement benefits to help them make ends meet, it’s a huge problem that the Social Security trust fund is at risk of running dry. Unfortunately, it’s a problem that Americans need to reckon with, as Social Security benefits are on track for an automatic benefits cut as early as 2032. 

Preventing this reduction in benefits will be critical to help keep seniors out of poverty — and finance expert Ramit Sethi has suggested a first step the government could take to shore up the retirement income program. Here’s what Sethi had to say about a Social Security fix he believes lawmakers should start with. 

Ramit Sethi recommends this step to fix Social Security

In a conversation on Twitter where Ramit pointed out that privatizing Social Security would have been bad for most Americans, Sethi was asked about what he saw as the best solution for Social Security, given that:

• The current system is unsustainable because there is not enough money in the trust fund to cover all the promised benefits that must be paid out a
• A declining birth rate means there may not be enough workers paying into the system in the future. 

Sethi had a simple answer: “Eliminate the cap as a first step,” he said. He also acknowledged that, “beyond that, other options are trickier & more complex.”

By eliminating the cap, Sethi is referring to the cap on the wages that are subject to Social Security tax. Right now, while most people pay taxes on all of their income, there is a wage base limit or a cap on the amount of benefits subject to tax.

In 2026, that cap is $184,500, up from $176,100. Any income earned above that threshold is no longer subject to Social Security tax, nor is it counted in the calculation of monthly benefits when retirement comes around. 

Will eliminating the cap work to save Social Security?

Eliminating the cap on the wage base limit is an idea that has been floated before.

One proposal, made by President Obama in 2008, would have kept the wage base limit in place and created a gap where no new taxes applied before beginning to charge Social Security tax on income above $250,000. The theory behind this was that it wouldn’t result in a tax increase on the middle class, but some of the country’s top earners would start paying more in Social Security tax once their income went above $250,000. More recent proposals have kept this idea, but suggested applying the extra tax on income over $400,000.

The problem is, right now, Social Security benefits are directly tied to wages. Retirees get benefits equal to a percentage of their average wage over the 35 years when their earnings were the highest. Since the wage base limit exists, high earners have a cap on both how much they pay in and on their monthly benefits.

If you eliminate the cap as Sethi suggests, then one of two things would happen:

• Rich people would pay more in, but get much larger benefits or
• They would pay more in, but their benefits wouldn’t increase at all, and their money would be used to cover some of the Social Security shortfalls.

However, Social Security has always been an earned benefit, and it enjoys broad support in part because workers get back money based on what they contributed.

Changing the rules so high earners paid in much more, but their benefits didn’t go up at all, would fundamentally change Social Security’s basic premise. Now, some people — including Sethi — may be OK with that. But it’s worth acknowledging that this would be a major shift, and it’s unclear if lawmakers would be willing to change the fundamental nature of the program in that way.