Monday, April 27th, 2015
Two prominent Republicans recently came out on opposing sides of the Social Security “means testing” debate.
Governor Chris Christie (who has yet to declare himself in the 2016 Presidential race) dared to touch that “third rail” (one that most politicians fear will electrocute them) by declaring that Social Security benefits should be means tested because as it stands today, the arithmetic simply doesn’t work.
Donald Trump (who has hinted that he might throw his hat in the ring for President) took a different tack, arguing that Social Security isn’t an entitlement; it’s honoring a deal.
But if the point is to protect the beneficiaries, will be destroyed by bankruptcy?
Over the weekend, I did a simple analysis by going online to my own social security account (www.ssa.gov/myaccount). You can do it too; when you go to the site, simply click on “Sign In” and set up your own account. You will be able to see year by year your FICA and Medicare wages, and there is a summary of what you and your employer(s) have contributed since your first day of work.
I have already reached the age at which I can collect social security, but I have chosen not to take it yet because I am still working and don’t need it.
BUT and this is a HUGE BUT,
I am eligible, by virtue of the fact that I have turned 66, to receive (and have in fact elected to do so) a monthly payment that is equal to half of what my husband currently gets. Note that this is in addition to what he receives and my current Social Security income does not tap into my future benefits. In fact, my future benefits will increase because I have chosen to receive them at a later date.
Had I chosen to take my normal Social Security payments at age 67, the amount that I (and my employers over the years) had accumulated would have lasted nine years. That’s right. I would have used up all the money associated with my earnings by the time I was 75. But my life expectancy at 67 is another 18.62 years!!! That means from the time I reach 75 until I die (and if I live till 75, my life expectancy is another 12.77 years or nearly 88 years of age) I will be receiving Social Security money that I never contributed. Even a third grader can make that calculation.
So Governor Chris Christie is right. The arithmetic simply doesn’t work and it never will, particularly now that the 76 million baby boomers are retiring at the rate of 10,000 per day!
In large measure the numbers no longer add up because longevity has so vastly improved since Social Security was instituted during the Depression in 1935. Back then, life expectancy at birth was 67 years for men and 73 years for women. Contrast that with today – 76 years for men and 81 for women. And it goes without saying that trend will continue – the older you get, the longer you will live.
Means testing is the only way today to make a dent in the Social Security deficit. In fact the very concept of “SOCIAL SECURITY” implies a benefit for someone in need, as so many were during the dark days of the Great Depression.
Retirees who have been fortunate enough to accumulate significant assets by the time they retire are not in need of that security. But is there anyone in Congress who is bold enough to touch that “third rail” with a logical, sensible and viable formula for means testing? Is anyone principled and courageous enough to take a short term political risk in order to tackle a serious long term problem? Sadly, I doubt it.
Donald Trump is right on one thing: his recommendation that individuals be allowed to dedicate a portion of their own payroll taxes to a personal Social Security account that they could invest is spot on.
Today the money you have deducted from your wages to fund Social Security is not yours; it’s the Government’s money. And if you die prematurely, it is not part of your estate. A personal Social Security savings account would be yours.
For those who fear that private social security accounts run the risk of being subject to the vagaries of the markets, there are plenty of safeguards that could be installed to minimize those risks. The value of compounding returns to monthly contributions is monumental. But that will be the subject of another blog in the near future.
© Copyright 2015 Patricia W. Chadwick