Will social security still be available in 20 years for high income earners?

M. asks: Will social security still be available in 20 years for high income earners?

I am wondering that myself.
Social Security already exists for about 80 years. It was established to provide supplemental income in retirement. 


The social security expenses are rising mainly because of following reasons:


1. Lengthening of life expectations 
2. Increasing numbers of retired baby boomers
3. Changing of worker to beneficiary ratio with beneficiaries increasing and workers decreasing.



There are three social security sources of revenue:

1. Payroll taxes on earned income (approximately 87%)
2. Interest earned on reserve assets (approximately 10%)
3. Taxation of benefits (approximately 3%) 

The social security already started to the reserves in addition to the incoming funds.
It was estimated that the reserves will disappear by 2034. 


That means that the revenues will have to be increased. What are the ways to increase revenues?

1. Increasing the retirement age
2. Increasing payroll taxes
3. Increasing taxation of benefits
4. Decreasing the benefit amounts

So, most likely the social security will still exist for a long time. But the once the reserves are depleted, the revenue will have to be increased. 

High income earners will very likely be the most affected by this. It will be easy to move or remove the social security tax cap (currently at $127,000). 
High income earners can be hit by introduction of eligibility criteria. It could be based on total amount of all yearly retirement income (including non-earned income like investment related gains or dividends or rental income). 


High income earners are at risk for both, paying in more and getting out less.   


For the high income earners the social security benefits are already taxable and they pay federal income tax rate on up to 85% of the social security benefits.
 
In retirement the federal income rate is based on the combined income (adjusted gross income plus non-taxable interest and plus half of social security benefits).
 
Adjusted gross income is the total gross income minus deductions. Gross income includes wages, dividends, interest, business income, rental income and all other types of income. In retirement most deductions become irrelevant except allowances for personal exemptions.
 
Example:
In retirement your combined yearly income is $200,000 (401k distributions, IRA distributions, rental income, capital gains and dividends from taxable accounts and bank interest).
After adjusting it by taking out variable deductions it may reduce it to $160,000 (approximate number).

The federal tax bracket for $160,000 is currently 22% (2018). But in retirement the non-taxable interest and a half of the social security benefits will also be added to this number.
 
For example, if the yearly social security benefits are $24,000, that will bring you over the limit of $165,000 for the 22%  bracket into the 24% bracket.
 
Following that your social security benefits will be taxed based on your status.

If filing as single and your combined income is over $34,000, you will pay 24% taxes on 85% of the social security income. That means you will pay 24% on $20,400 of the social security, which is $4,896. 

If filing married and joined and your combined income is over $44,000, you too will pay 24% taxes on 85% of the social security income.

If filing as married but separate, there is no threshold and the benefits will be taxed regardless of how much is your combined income.
 
Those are federal taxes. If you leave in the state that taxes social security benefits, add that.