Worse Than I Imagined (Part I)

Social Security and Medicare are grand Ponzi schemes that make Bernie Madoff’s operations look like petty theft. They discriminate against black males especially because they pay into the system on every job they have, but many die of health problems and violence long before they collect a dime in benefits. Middle and higher income Americans have to live into their nineties, if not past a hundred, before they collect more in benefits than they paid into the systems.

I receive the maximum Social Security benefit — about 60 percent of the median household income — but the checks have largely been play money for my wife and me. Because Congress repealed the earnings penalty for people who have reached their normal retirement age — in my case, 65 years,

10 months — I remained fully employed with an annual income within the top few percent of all income earners.

Politicians have always extolled a key virtue of Social Security: keeping low-income seniors out of abject poverty. For my family, the monthly checks helped cover my daughter’s education costs at a private university and then her wedding.

Now that I am retired, those Social Security checks come on top of my very generous retirement income (with full benefits) and my wife’s employment income. The checks don’t keep us from falling into poverty. They ensure that we don’t have to sell our second home or tap our financial assets built up over the decades in, of course, tax-deferred 403(b) accounts and other investments.

What is remarkable is that the federal government has sunk ever deeper into debt so that my wife and I, and tens of millions of other middle-class and well-off Americans, can live the lifestyles to which we have become accustomed. Those checks will likely finance a cruise or two and maybe a couple of foreign trips. Our lifestyle would be even grander had we been allowed to invest our Social Security taxes in higher-yielding mutual funds.

Granted, tens of thousands of low-income people — especially those who were unable or unwilling to save while working — may use their Social Security checks to buy basic food, shelter and transportation. As the head of AARP noted in 2011:  “Social Security is the principal source of family income for over half of older Americans, and roughly one quarter of those aged 65 and older live in families that depend on Social Security benefits for 90 percent or more of their income. In 2009, Social Security benefits kept over 36 percent of older Americans, including 39 percent of all older women, out of poverty. Before the enactment of Social Security, more than half of those 65 and older were poor.”

Advocates for never touching the benefits of the elderly in lower income groups will never acknowledge that many have much better retirement lifestyles than their annual incomes might suggest. Elderly people who have just started receiving Social Security are often surveyed when their incomes are temporarily suppressed because they have lost jobs, or they are out of work for health reasons. The future job, income and health prospects of some may be bleak, but that is certainly not the case for all.

Some elderly people with low incomes one year can expect relatively nice lifestyles their remaining years. This is especially true for those with savings and no mortgages — who sometimes have backyard swimming pools, nice cars and large-screen HD televisions, as studies have found is the case for many poor people.

Today, over a third of Social Security recipients have total family incomes above the national median income (about $50,000); over a fifth of social security recipients have family incomes over 50 percent higher; and nearly an eighth (12.2 percent) have household incomes above $105,000. Given the country’s extraordinary fiscal exigencies, are Social Security benefits politically untouchable — even for high-income recipients?

Richard McKenzie is a senior fellow with the National Center for Policy Analysis.

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Comments (3)

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  1. H. James Prince says:

    As it is so often pointed out, “entitlement to Social Security benefits is not contractual right” protected under the U.S. Constitution (see Flemming V. Nestor, http://www.cato.org/publications/commentary/is-there-right-social-security). While you and others may be among the third of SS beneficiaries above the $50k mark, until proper reform comes about, perhaps you’d be willing to donate your SS cheque to your local food pantry for the elderly?
    Everyone is willing to talk about helping the poor. Many are even willing to spend others’ money to help the poor. Very few spend their own.

  2. Mulligan says:

    This was a wonderfully refreshing piece. Dr. Mackenzie, go on those cruises. You shouldn’t feel one iota of guilt for planning or being fiscally responsible.

  3. Scott Wagner says:

    Thank you for the direct and honest commentary regarding social security and those who are better off than average. Always good to see input on the problem that is clearly counter to self-interest: makes one sit up and listen better.

    The system is implicitly designed with a paradox at its center: 1) to provide a safety net for those who don’t have income when they need it later (a tax, or transfer payment), and 2) to provide a somewhat proportional benefit to those who paid in (an investment or savings). I think that both of those values are fine in theory, but mixing a tax with investment has provided very bad incentives and attitudes. And we’ve got any balance we wanted between the two wrong, as evidenced by our funding problems. The common notion that “I paid in to Social Security, so I earned my right to retire at age xx” translates into fiscal disaster, especially in our rapidly aging society. It encourages belief in the fantasy that the small amounts we pay into social security on average can cover our benefits later. This may have been true when our average mortality age was much lower, but it isn’t at all true now for most Americans, who now live far past retirement age on average. I’d like to call it a tax, fold in some incremental means testing, and stop any remaining charade of investment. At the same time, if it’s a tax, let’s go back to addressing need only, in the spirit of emphasizing personal responsibility. Age-based retirement is a random way to award money, with many benefiting from government-paid retirement instead of working as they are able. There’s no age at which it’s fair for the state to take on responsibility for the income of its citizens so they can stop working, apart from a safety net idea, a physical or mental need. That “I made it!” attitude encourages an unhealthy mindset that work should be avoided if possible, or that someone else is responsible for our own ability to work less or stop working. Work is a GOOD thing, and- horrors!- working until the end of life as one is able is not necessarily some kind of tragedy scenario, but is a perfectly acceptable, productive lot of many in a healthy society (I think “retired” people should all be volunteering actively for the good of society in between their vacations, but I guess that’s a separate subject). Ultimately, the government should phase out any vestiges of investment-related thinking- “retirement” should be about either having enough money to quit or disability. There should also be a common partial disability idea, meaning less or limited types of work, so that the implicit age-based welfare component of the system is eliminated. The effective taxation will thus be devoted to a much smaller population of people, based solely on inability to work. Frankly, I don’t see us being able to afford any other type of system in the long run.