Social Security opt out for $2 million savers gets a hard reality check

A Social Security opt out for wealthy savers sounds tidy on paper, but MarketWatch columnist Quentin Fottrell says the real world makes it a far messier proposition.

The question came from a 63-year-old semiretired physician who wrote to Fottrell’s Moneyist column with a proposal: let people with at least $2 million in retirement accounts leave Social Security, while removing or lifting contribution caps on IRAs and 401(k)s, especially Roth IRAs.

The physician argued that someone who has built that level of retirement savings has shown enough financial discipline to take on more responsibility for their own retirement security. The reader also said the $2 million to $4 million range is often discussed by financial planners as the point where some people may self-insure for long-term care rather than buy long-term-care insurance.

Can you opt out of Social Security?

Fottrell wrote that Social Security cannot be waived under current rules. He framed the program as social insurance rather than a personal investment account, noting that it exists because people can lose money, suffer health setbacks, leave work early to care for others, or fall victim to scams.

In his answer, Fottrell said a person who stopped participating would also have to give up the protections tied to continued participation. He compared it with insurance: if someone stops paying premiums, they should not expect the same coverage later.

He also pointed out that Social Security is not only a retirement benefit. The program also includes disability and survivor benefits, which means any opt-out plan would have to decide what happens to a disabled worker, a surviving spouse, or a qualifying divorced spouse.

What would a $2 million Social Security phaseout save?

Fottrell cited Mark J. Warshawsky, a senior fellow at the American Enterprise Institute, who wrote in a paper earlier this year that a $2 million threshold would cut Social Security program costs by about 13.6%. A gradual phaseout would save 11.8%, according to Warshawsky.

Those savings would still fall short of closing the projected gap, Fottrell wrote. He also cited the Employee Benefit Research Institute and the Federal Reserve’s Survey of Consumer Finances for the finding that less than 2% of U.S. households have saved $2 million in retirement accounts.

The column also underscored how dependent many Americans remain on the program. Fottrell wrote that the average Social Security check is about $2,000 a month, while roughly one-third of Americans say they expect to rely only on Social Security in retirement.

Fottrell added that Social Security replaces only about 40% of the average worker’s wages for someone retiring at 65. Many workers do not plan to wait until 70 to claim benefits, even though delaying can increase monthly payments, and some worry the program’s funds could run short in 2033 if Congress does not act.

The Moneyist’s bottom line was blunt: a wealth-based opt-out might reward self-reliance in theory, but unexpected reversals can wreck even careful plans. For Fottrell, that is exactly why Social Security remains a constant backstop, including for people who once looked financially secure.

This story draws on original reporting from MarketWatch.