Tuesday, July 13, 2010

No "Means Testing" for Social Security

The social security system is broken. Pretty much everyone agrees on that much. In fact, even the Social Security Administration is upfront about its current fiscal prospects. From my own social security statement from earlier this year:
"Social Security is a compact between generations. Since 1935, America has kept the promise of security for its workers and their families. Now, however, the Social Security system is facing serious financial problems, and action is needed soon to make sure the system will be sound when today's younger workers are ready for retirement.
In 2016 we will begin paying more in benefits than we collect in taxes. Without changes, by 2037 the Social Security Trust Fund will be exhausted and there will be enough money to pay only about 76 cents for each dollar of scheduled benefits...."
Well there you have it. There's simply not enough money in the bank to pay for all the obligations. A solution must be found, and whatever proposal goes on the table is likely to raise serious objections from those whose financial interests will be harmed by the proposed solution.

Clearly, sacrifices need to be made, and a number of sound options have been put on the table, including raising the retirement age, indexing benefits to inflation rather than to salary increases and so forth. However, there has been one proposed solution that is really upsetting to me - the idea that Social Security benefits should be means tested.

My wife and I consistently pay the maximum annual amount in Social Security taxes - currently 6.2% of our salary, each. We make a decent living, and I am not going to apologize for it. It is already pretty clear that we can expect to receive far less in benefits than we pay out in taxes, and you know what, I am OK with that. I make more money, I will pay my fair share. This is part of the social contract - we should take care of those less fortunate in our society. However, I think that it is completely unfair to charge us hundreds of thousands of dollars over our working lives, claiming that this money will be used to guarantee us regular income in retirement, only to later take the money and run.

Alpaca and I work hard. We take take sizable chunks of our paychecks and save them - setting money aside for a rainy day and ultimately to give us the lifestyle that we want in retirement. And, yes, we also want to leave something to our kids when we are gone. The money which we save will become income generating assets. Under the means testing proposal, our hard work and propensity to save could be used to revoke or reduce our right for Social Security income. Income which we rightfully earned and paid for with our hard-earned, maxed-out taxes. We don't have to save. We could take the money and just spend it, but that would be irresponsible, wouldn't it?

Means testing is a pernicious approach that penalizes the saver compared to the spender. If instead of saving our money today we spent it all, leaving nothing for retirement, we would have no "means" that could be used as justification to reduce or eliminate our Social Security income. This policy would perversely encourage people to spend rather than save their extra income. Great for the economy today, horrible for our economic prospects as a nation.

I am willing to work a few more years before I am entitled to receive Social Security payments. I also think it's justifiable to index Social Security to inflation rather than to salary increases. I think that taking away our hard earned Social Security benefits for which we are paying over a lifetime of hard work is nothing short of robbery.

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16 comments:

Kim Stiens said...

I disagree. I've been trying to come up with a compromise here, something that might be the best of all worlds, but I just can't do it.

If SS is insolvent, there are only two solutions: Pay out less or tax more. I mean, those other solutions will be good too, I think, though I doubt they will be enough. I think there is currently an upper limit to income counted for that 6% taxed. I think removing that cap would be good, so those with the highest incomes would have their entire income taxed at 6% for SS.

And while I can sympathize with the sentiments here, and can agree that everyone should get a minimum payout, I think maybe that payout could be adjusted based on worth. Yes, it still has the problem of penalizing savers over spenders (although, we were all recently discussing, spenders drive the economy, so perhaps they should be treated better anyhow), but at least you and Alpaca would still get a certain minimum, and people like me would be confident that we're not paying out tons of a nearly bankrupt program out to people who don't need it.

Shadox said...

Kim - spender help the economy in the short run, savers help the economy in the long run. It's exactly the difference between buying on credit and saving your money.

The other point you make is bizarre to me. They call it social security. They send me annual statements explaining how our contributions will help us in retirement. If the idea is to take money from me for my crimes of hard work and savings, why the pretense? It's not like Social Security is the only form of tax we pay. We also pay income taxes. If that is the intention, scrap the Social Security farce, collect only income taxes, and stop pretending that we'll get the money back some day.

No. That's just not right. Social security is about making you save for retirement. It's not about and shouldn't be about taking your money from you with the assumption that you already saved enough and you don't deserve any more of your money.

It's plain unfair.

Wow Panda said...

This is one of the hard problems of our world. On one hand, the real poor people (who worked hard but still poor) should be helped. On the other hand, free loading of public money needs to be restricted. And it is human nature to free load, so the more money available for 'free', the more free loaders you create.

I really think social security should be done like a 401k, where you can see the money and can choose which indexed fund (the government can pick the top 10 fund) your money will go.

Shadox said...

Absolutely! In fact, I think that Social Security needs to be a forced savings mechanism - you put in your savings, and you get to withdraw them at old age. Social Security should not be another mechanism from the "rich" to the poor (for that there are taxes).

SAVER said...

Kim, (Part 1)
My husband and I are nearing retirement 54/59 and for you to recommend takings away some of our social security payments by "Means Testing" is down right wrong. I will never forget the time I was in a check out line at a store and the young lady in front of me was wearing NEW jeans and NEW cowgirl boots. At that time in my life I could of probably purchased the jeans but unless I took the money out of savings I certainly could not of purchased the cowgirl boots. The young lady paid for her items with food stamps. More recently another lady in the checkout line also paid for her items with the food stamp card they now have. I watched her when I left the store. She was driving a vehicle that was probably 2 years old while the vehicle I was driving was 10 years old. We were able to save what we have by hard work and doing without.

I have been working full time for 37 years and my husband has been working for 45 years full time. I can’t tell you how many times we both have went to work when we were sick. One day I was sick with a migraine. I took medicine and left for work. The medicine makes me sick to my stomach and I pullover over to the side of the road, vomited and then went on to work. Can’t count the number of times I have gone to work and toughed it out while being sick. And, lets talk about the massive amount of overtime that my husband and myself have worked at times. I’m talking that I did 80 hours per week for 3 months running. AND, the massive amount of overtime I put in at work and at the things I took home for my job that I received no pay for, just so that I could get the job done. AND, do we want to talk about the many many… many weekends that I took my daughter to work with me in order to get the job done. I was working so much that I didn’t have time to do laundry, so I had to go to the store and buy my daughter underwear so she would have clean clothes to wear. Now lets talk about how we savers control ourselves and do without in order to have the things we want and need later in life. When we purchased my vehicle, in order to make the payments and not take money out of savings, I skimped on what I ate and didn’t buy the expensive stuff that I could do without (candy, cokes, etc.). I ate baked potatoes at lunch. Had a can of corn ONLY, etc. I hung my clothes on the cloth line as to not use the dryer. Another words… I worked to save money. Currently, I’m making my own laundry soap like the Duggers do.

I grew up in a farming family of 11. We had food and clothing, but we did without and couldn’t buy anything we wanted because there wasn’t money. (OH…we don’t buy it if we don’t have the money!) My husband and I made sure that we controlled how many children we had so we could be sure to support them while others have as many as they can because they can get on welfare. Sure it would have been nice to have more children, but we wanted to support them and not have anyone else do the job we were suppose to be doing.
See next comment

SAVER said...

Kim,
When us savers save our money, we will then SPEND MONEY! And us savers don’t need handouts or free money.

SAVER said...

Kim, Part 2
Through saving and hard work we were able to purchase two rental properties. Being a landlord is not easy. We do most of the work on the rental properties ourselves. Again…we did the work.

For many years we have been doing without in order to put away as much as we can so we will have some money to last us through retirement. And I can tell you now. It’s not easy when my husband puts 16% of his salary in his 401k and I put 53% of my salary in my 401k. (Yes, I put 53% of my salary in my 401k so that the company I work for will match 20% to the maximum allowed by law.) AND, then we both max out the Roth IRA’s totaling $12,000.00 for the two of us. It’s not easy but we are doing what it takes now. We use to think we would be ok in retirement figuring we had 2 small rental properties, savings that would draw 5% interest and our social security.

Since 2005 when Hurricane Katrina hit and housing supplies prices went up (cost of replacing roof on rental house doubled), this was just the start of everything increasing cost wise. All insurance went up, then food, gas, utilities and on and on. Add to that as to what is going on in the last couple of year and the cost of everything keeps going up. Now throw in that interest rates on a CD, at the max, are now about 3%. We are currently at the point that due to our health, we will need to look at selling our rentals, which will only net us apx. $60,000 total. Then the rental income of $645 monthly will be replaced with $150 monthly or less for the interest we will earn, if we can get 3%.

Oh, don’t forgot to mention our daughter received her bachelors and went on to get her masters and WE paid for all of it.

We now have a grandchild. I am spending money like crazy to help my daughter with expenses. As a family we have always went on outings and trips. Because my daughter and son-in-law are just starting out and don’t have money, as in the past, we pay for everything and we are having the best time. Don’t get me wrong when I tell you how much we save, we still spend a lot. I have many times taken my daughter shopping. We purchased a small fishing boat and we take the family fishing on a local lake. All that gas and fishing equipment cost money and we consider it money well spent for the family time we get out of it. We have gone on several cruises, trips to Las Vegas, and other trips. This was all made possible because we are savers.

KIM, this is the kind of stuff that SAVERS do. They work for their living and do what it takes to save money so they can invest and spend money later on.

I worked for my savings and I worked for the money I put into social security. I have always planned on being able to get MY social security that I deserve and for you the suggest that just because I now have the “Means” that the government can take away what is rightfully mine and give it to someone else that did not do the things that we did and it down right makes me MAD.

You say that spender help the economy. Well savers are the ones that can really help the economy. When us savers save our money, we will then SPEND MONEY! And us savers don’t need handouts or free money.
==================
The END

SAVER said...

Kim, Part 2
Through saving and hard work we were able to purchase two rental properties. Being a landlord is not easy. We do most of the work on the rental properties ourselves. Again…we did the work.

For many years we have been doing without in order to put away as much as we can so we will have some money to last us through retirement. And I can tell you now. It’s not easy when my husband puts 16% of his salary in his 401k and I put 53% of my salary in my 401k. (Yes, I put 53% of my salary in my 401k so that the company I work for will match 20% to the maximum allowed by law.) AND, then we both max out the Roth IRA’s totaling $12,000.00 for the two of us. It’s not easy but we are doing what it takes now. We use to think we would be ok in retirement figuring we had 2 small rental properties, savings that would draw 5% interest and our social security.

Since 2005 when Hurricane Katrina hit and housing supplies prices went up (cost of replacing roof on rental house doubled), this was just the start of everything increasing cost wise. All insurance went up, then food, gas, utilities and on and on. Add to that as to what is going on in the last couple of year and the cost of everything keeps going up. Now throw in that interest rates on a CD, at the max, are now about 3%. We are currently at the point that due to our health, we will need to look at selling our rentals, which will only net us apx. $60,000 total. Then the rental income of $645 monthly will be replaced with $150 monthly or less for the interest we will earn, if we can get 3%.

Oh, don’t forgot to mention our daughter received her bachelors and went on to get her masters and WE paid for all of it.

SAVER said...

Kim, Part 3
We now have a grandchild. I am spending money like crazy to help my daughter with expenses. As a family we have always went on outings and trips. Because my daughter and son-in-law are just starting out and don’t have money, as in the past, we pay for everything and we are having the best time. Don’t get me wrong when I tell you how much we save, we still spend a lot. I have many times taken my daughter shopping. We purchased a small fishing boat and we take the family fishing on a local lake. All that gas and fishing equipment cost money and we consider it money well spent for the family time we get out of it. We have gone on several cruises, trips to Las Vegas, and other trips. This was all made possible because we are savers.

KIM, this is the kind of stuff that SAVERS do. They work for their living and do what it takes to save money so they can invest and spend money later on.

I worked for my savings and I worked for the money I put into social security. I have always planned on being able to get MY social security that I deserve and for you the suggest that just because I now have the “Means” that the government can take away what is rightfully mine and give it to someone else that did not do the things that we did and it down right makes me MAD.

You say that spender help the economy. Well savers are the ones that can really help the economy. When us savers save our money, we will then SPEND MONEY! And us savers don’t need handouts or free money.
=========
The end

SAVER said...

Kim, (Add’l)
We are not an upper income family. Just middle of the middle class people. We got to where we are today by both of us working. I and my husband have had to work for A**hole bosses and hang tough at a job we didn’t like to get were we are today.

Wow Panda,
You can not tell me that people (who worked hard but still poor) really work hard and do the right things with their money (as in… live within their means), remain poor.

People who do not live within their “Means”, when it come to time to draw social security, if they want more, should work longer and then when they do draw social security, they need to live within their own “Means” and not be trying to take my social security.

If everyone did what I and my husband do, we would NOT be in this mess.

=========
You really got me going now. I don’t know if I can quit.
The end for now.

Mad As H**** said...

This was posted 3 years ago.

When did the U. S. government begin to use the Social Security funds for something else?
What year was it and who was president? What was the name of the bill that implemented it?

Franklin Roosevelt introduced the Social Security (FICA) Program. He promised:

1.) That participation in the Program would be completely voluntary,

2.) That the participants would only have to pay 1% of the first $1,400 of their annual incomes into the Program,

3.) That the money the participants elected to put into the Program would be deductible from their income for tax purposes each year,

4.) That the money the participants put into the independent "Trust Fund" rather than into the General operating fund, and therefore, would
only be used to fund the Social Security Retirement Program, and no other Government program, and,

5.) That the annuity payments to the retirees would never be taxed as income.

Since many of us have paid into FICA for years and are now receiving a Social Security check every month -- and then finding that we are getting taxed on 85% of
the money we paid to the Federal government to "put away" -- you may be interested in the following:

Q: Which Politic al Party took Social Security from the
independent "Trust Fund" and put it into the General fund so that Congress could spend it?

A: It was Lyndon Johnson and the democratically controlled House and Senate.

Q: Which Political Party eliminated the income tax
deduction for Social Security (FICA) withholding?
A: The Democratic Party.


Q: Which Political Party started taxing Social Security annuities?

A: The Democratic Party, with Al Gore casting the "tie-breaking" deciding vote as Preside not of the
Senate, while he was Vice President of the US.


Q: Which Political Party decided to start giving annuity payments to immigrants?

A: Jimmy Carter and the Democratic Party.
Immigrants moved into this country, and at age 65, began to receive Social Security payments! The Democratic Party gave these payments to them, even though they never paid a dime into it!
Then, after doing all this lying and thieving and violating of the original contract (FICA), the Democrats turn around and tell you that the Republicans want to take your Social Security away!

Anonymous said...

Everyone who actually paid into the system deserves to receive their fair share - nothing more, nothing less. The freeloaders & career welfare addicts should split what ever is left. I didn't request someone to pop out 7 "mistakes" that are now burdens to society - Using the "free" emergency room at the hospital for example, that costs me thousands... There is so much fraud, waste & abuse it just makes me sick....

=(

Shadox said...

Anon - the healthcare debate is a separate matter which I have commented on in another post. I am a firm believer that healthcare is a basic human right. We can't stand by and watch our fellow countrymen dying from disease and pretend it's all because of their mistakes. On that front we are in complete disagreement.

Also - the fraud and waste argument is a really poor one that is most often used by politicians that pretend that there are simple & painless solutions to major problems and that we can somehow avoid real sacrifice in solving our key issues. I always ask people who make the argument to point to specific numbers they could save and how they would solve the concrete "waste" issues.

On the social security issue - which was your main line of commenting, we are in complete agreement.

Anonymous said...

Means Testing social security benefits is an insult for all of us that were very conservative in our spending and sacrificed to save for retirement.

This is truly a travesty of justice.

Floyd L. said...

Mad As H****'s facts do not check. immigrants do not receive social security benefits or any others except by fraud or very narrow exception:

http://www.factcheck.org/2009/03/social-security-for-illegal-immigrants/


In fact, total post is lifted from some bogus source.

http://www.snopes.com/politics/socialsecurity/changes.asp

- Lozano

Anonymous said...

Adjusting SS based on net worth would be the idea of a financially illiterate person. Net worths are a moving target. Annually appraise a persons real estate, annually review their stock portfolio, annually review if they slipped any money to their kids, annually appraise their autos and jewelry? I've seen numerous farms which prior to death we're reported as valued in the millions, only to see the offspring sell the farm to pay the inheritance taxes. Rich on paper is impossible to accurately gage and changes constantly.Naturapathic medicine deals with causes rather than symptoms.We must also. Address the fat, duplication, graft,and outright fraud taking place dailey and sanctioned by our government, and we'll get there. Just stealing the money from people who saved is not the answer.