A Terribly Unjust ‘Solution’ to the Entitlements Insolvency ‘Conundrum’

Donald Trump has been hammering Ron DeSantos over his prior stands on the big so-called “middle class entitlements,” Social Security and Medicare. “Don’t touch them” is Trump’s mantra, despite their well-known solvency problems. Washington Post columnist Henry Olsen has some advice for DeSantos. In Here’s a solution to DeSantis’s Social Security and Medicare conundrum, Olson advises:

Former president Donald Trump has been hammering Ron DeSantis over his past votes to significantly change Social Security and Medicare. The Florida governor and former congressman has attempted to wave away the attacks, but there’s a better way to counter Trump’s charges: Appeal to both GOP conservatives and populists by targeting entitlement benefits to those in need.

Social Security and Medicare both have a dirty secret: They spend tens of billions of dollars each year subsidizing well-to-do seniors who don’t need, or can pay more for, their benefits. 

That “well-to-do seniors who don’t need it” can collect benefits that they paid for and were promised is not “dirty,” secret or not. It is what makes Social Security and Medicare among the fairest welfare state programs in existence. The fact that personal financial health is not a factor is what gives these fundamentally immoral programs at least an element of justice.   

Social Security benefits are not means-tested; billionaire Elon Musk can collect Social Security when he retires. Similarly, Medicare’s hospital benefits (Part A) go to everyone on the same terms regardless of their finances. Premiums for Medicare’s outpatient and drug benefits (Parts B and D) are also only partially means-tested. The result is that millions of people who can pay full freight for their Medicare benefits don’t, and millions more use their Social Security benefits to top off their substantial private savings.

Whenever you hear the rich being targeted, you’ve encountered a hidden attack on the middle class. If you think cutting off the tiny handful of multi-billionaires would be enough to save Social Security and Medicare, you’re delusional. Elon Musk is window dressing. The real target is any responsible, frugal long-term planner who has earned a private pension, built up retirement savings like a 401k or IRA, or accumulated “substantial private savings,” whatever that means.

“Means testing” is short-hand for screwing the successful. It would destroy that element of justice. It would put everyone at the mercy of government authorities who would judge your “need,” and thus your worthiness to collect these benefits—and deny you if you are flagged by some statistical formula. You paid in hundreds of thousands of dollars over your working life, without your consent, depriving you of your right to use your own money as you judge best? Too bad. We’re going to deprive you of your promised benefits. Olsen suggests $100,000 of “non-Social-Security income” as the cutoff, after which your benefits would begin to be reduced and your premiums rise. But why not $75, 000, or $50,000? Pick your number. That Elon Musk’s benefits are treated the same as everyone else is a moral positive, not a program vice. Once you’ve cut off the Elon Musks of the country from their rightful benefits, you’ve opened the door to attacks on all retirees with savings. Olsen admits as much: “Millions of people who can pay full freight for their Medicare benefits don’t,” he writes, “and millions more use their Social Security benefits to top off their substantial private savings.” 

Millions! Don’t delude yourself into believing that you are not one of those millions. The best protection for your earned and paid for promised benefits is to leave Elon Musk’s benefits alone.

Social Security and Medicare are in deep trouble. They should be reformed. I’d start with personal accounts as a step on the way to elimination. But any reforms must be fair, and not include more draconian means-testing in addition to the limited means-testing already in the programs. It’s a matter of justice.

Related Reading:

The “Personal Account” Path to Ending Social Security

Your 401(k) - Obama’s Next Target

On the Question of When to Begin Taking Social Security Retirement Benefits

RE: ‘Is it a mistake to take Social Security and leave my 401(k)?’ by Karin Price Mueller

People become eligible to collect Social Security retirement payments at 62 years old. But each year until age 70, monthly benefits rise. So the longer you wait to collect, the higher your payments. The question is should you wait? In her New Jersey Star-Ledger financial advice column, the “Biz Brain”, Mueller answered the following question:

Q. What are the advantages and disadvantages to retiring, taking Social Security and leaving my 401(k) intact?

Mueller, citing one expert, advises:

[F]or many people, taking Social Security early is a mistake.

One of the most important things to retirees is consistent, stable and predictable cash flow, said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton.

“If I have a product that would guarantee you an 8 percent annual increase up to age 70, was indexed for inflation and guaranteed for life, would you move all your money into that? That is Social Security,” he said.

Lynch said Social Security is one of the most underestimated benefits out there, noting the more guaranteed income you have in retirement, the less stress you will have when the market is volatile like now.

For that reason, it could be smarter to tap your 401(k) and let your Social Security benefits grow, but you should sit down with a financial planner who can assess your assets and cash flow and see exactly where your personal situation stands.

But would it really be “smarter to tap your 401(k)” early? 

Lynch’s advice seems to be typical of most advisers. At a glance, it seems like a no-brainer. But there’s more to the issue than Lynch and these other advisers lead us to believe. Lynch’s 8% growth argument is misleading, since it ignores other factors, such as the growth of the 401(k) that you would be forgo.

Suppose you retire at 62. You have a significant IRA nest egg. Let’s say you are entitled to $2000 per month at that time, which rises to $3300 by age 70, if you wait. If you wait, you must start draining your IRA. Rather than start taking IRA withdrawals, you take the $2000 per month, and let your IRA grow without touching it. At age 70, you will have collected about $178,000, along with having a much larger IRA. If you wait until until 70, you would collect $3300 per month, but with a depleted IRA. Furthermore, waiting until 70 would require 11+ more years to “break even” with the $178,000 in SS benefits you wouldn’t have already collected had you waited until 70. 

Waiting until age 70 to collect would leave you with no financial savings cushion--or a much reduced one--and the hope that you will live long enough to get back the $178,000 you left on the table for those 8 years. You’d have your higher monthly payments, but not the security and peace-of-mind that a hefty nest egg could provide.

Of course, if you have a big enough savings cushion to make withdrawals while still getting growth, it might make sense to wait until age 70 for that $3300 per month (although I don’t think so). And if you’re really healthy, you could be a big winner by living well past 81. 

But keep in mind that “guaranteed income” is not by any means guaranteed. It depends entirely on the whims of politicians. You have no property right to that money you pay “into the system”—and never have. You are not legally entitled to the promised benefits—and never have been. The politicians can lower or rescind the benefit at any time. As CATO reports, “One of the most enduring myths of Social Security is that a worker has a legal right to his Social Security benefits. Many workers assume that, if they pay Social Security taxes into the system, they have some sort of legal guarantee to the system’s benefits. The truth is exactly the opposite. It has long been law that there is no legal right to Social Security.”

I would think very carefully before taking the advice of waiting until age 70 to collect your Social Security benefits. 

Related Reading:

Wall Street’s ‘Unfairness’ Shouldn’t Scare the ‘Little Guy’ Out of the Stock Market

Caroline Poplin's Swiss Cheese Defense of Social Security

Conflicting opinions about Social Security: 

According to Brenton Smith, the temptation of collecting early could cause you decades of hardship. Mark Hulbert presents arguments in favor and against taking Social Security payments early.

Should you take Social Security at 62?

Why it's a bad idea to count on Social Security. Here's why you should not rely on what was originally intended to be an income supplement for the elderly.

Here's why it might be better to take Social Security at age 66 instead of 70

Clarifying the Corrupt Nature of Social Security

Clarifying the Corrupt Nature of Social Security

The following essay has been making the rounds on social media:

A woman died at age 65.  She paid into the system for almost 50 years and collected NOTHING?  Keep in mind all the people that die every year that were paying into the system and got nothing!  And these governmental morons mismanaged the money and stole from the system, so that it's now going broke.

BEAUTIFUL! and they have the audacity to call today's seniors "vultures" in an attempt to cover their ineptitude.

   DISGRACEFUL!

The real reason for renaming our Social Security payments is so the government can claim that all those social security recipients are receiving

entitlements thus putting them in the same case as welfare, food stamp recipients.

THIS IS WORTH THE FEW MINUTES IT TAKES

TO READ AND DIGEST!

F.Y.I. By changing the name of SS contributions it gives them a means to refute this program in the future.

It's free money for the government to spend under this guise.  The Social Security check is now (or soon will be) referred to as a *Federal Benefit

Payment*?

I'll be part of the one percent to forward this.  I am forwarding it because it touches a nerve in me, and I hope it will in you.  Please keep passing it on until everyone in our country has read it.

The government is now referring to our Social Security checks as a "Federal Benefit Payment."   This isn't a benefit.  It is our money paid out of our earned income!  Not only did we all contribute to Social Security but our employers did too.  It totaled 15% of our income before taxes.

If you averaged $30K per year over your working life, that's close to $180,000 invested in Social Security.

If you calculate the future value of your monthly investment in social security ($375/month, including both you and your employers contributions) at a

meager 1% interest rate compounded monthly, after 40 years of working you'd have more than $1.3+ million dollars saved!

This is your personal investment.  Upon retirement, if you took out only 3% per year, you'd receive $39,318 per year, or $3,277 per month.

That's almost three times more than today's average Social Security benefit of 1,230 per month, according to the Social Security Administration.  (Google it – it's a fact).  And your retirement fund would last more than 33 years (until you're 98 if you retire at age 65)!  I can only imagine how much better most average-income people could live in retirement if our government had just invested our money in low-risk interest-earning accounts.

Instead, the folks in Washington pulled off a bigger *Ponzi scheme* than Bernie Madoff ever did.  (Lyndon Johnson)

They took our money and used it elsewhere.  They forgot (oh yes, they knew) that it was OUR money they were taking.  They didn't have a referendum

to ask us if we wanted to lend the money to them.  And they didn't pay interest on the debt they assumed.  And recently they've told us that the

money won't support us for very much longer. (Isn't it funny that they NEVER say this about welfare payments?)

But is it our fault they misused our investments?  And now, to add insult to injury, they're calling it a *benefit*, as if we never worked to earn every

penny of it.  Just because they borrowed the money, doesn't mean that our investments were a charity!

Let's take a stand. We have earned our right to Social Security and Medicare.  Demand that our legislators bring some sense into our government.  Find a way to keep Social Security and Medicare

going for the sake of that 92% of our population who need it.

Then call it what it is:

Our Earned Retirement Income.

99% of people won't forward this.

Will you? [sic]

There’s a large measure of truth there. But it’s inaccurate in important ways. Here is my rebuttal:

True; Social Security is thoroughly corrupt—which is why I won’t be forwarding this e-mail.

Your Social Security taxes are in fact not a “personal investment”. They are a wealth transfer payment from you who earned it to those who didn’t earn it. The Social Security “trust fund” is a fraud. The taxes that go into it are immediately paid out to other people—people you don’t even know—or “lent” to Congress to spend as they see fit. Unlike a pension fund, which legally must contain real assets sufficient to fund the vested benefits, the SS trust fund is a pile of IOUs—non-tradeable treasury bonds—that can only be repaid by additional taxes levied on us, the same people whose SS taxes funded it in the first place! The “system” is not “going broke”. It has always been broke, by design.

You have no property right to that money you pay “into the system”—and never have. You are not legally entitled to the promised benefits—and never have been. The politicians can lower or rescind the benefit at any time. As CATO reports, “One of the most enduring myths of Social Security is that a worker has a legal right to his Social Security benefits. Many workers assume that, if they pay Social Security taxes into the system, they have some sort of legal guarantee to the system’s benefits. The truth is exactly the opposite. It has long been law that there is no legal right to Social Security.”

So yes, the benefits are in fact Federal Benefit Payments in the nature of welfare and food stamps—and funded the same way, with other people’s taxes. Social Security payments are not “earned retirement income”. You money is long gone, along with the potential return on investment. Those Social Security monthly checks are literally handouts funded by taking money out of other people’s pockets. What about the money you “paid in” all those years? That’s long gone. A more proper term to describe Social Security benefits is restitution. You are entitled to receive the promised benefits for the same reason you are entitled to get your wallet back from a street thug who mugged you. But that is not a return on investment of your money. Those monthly checks are only made possible by government doing to others what it did to you all those working, taxpaying years. If that isn’t moral corruption, then the term has no meaning.

Social Security, like all socialist programs, is corrupt to it core. It forces everybody into a chain gang of reciprocating slavery and dependency, with the state as the master and “benefactor”. Re-labeling won’t change that. “Need” won’t change that. Social Security shouldn't be saved. It should be phased out and abolished. Until that is politically feasable, I advocate for a personal account system. The taxes future participants must pay—all 15.3% of it—should at least be deposited directly into a real account, in the individual's name, invested as the individual sees fit, inheritable for the individual’s heirs, with an iron-clad statutory ban on politicians, other retirees, or anyone else getting their hands on one nickel of it for any reason.

Government-forced savings are not right, either—but much less bad than the current fraud. At least each “contributor” would see where his/her money goes and watch it grow, via monthly statements, like an IRA or 401k. Only by establishing the individual’s property right to his payments could the money drawn out be honestly called Earned Retirement Income.

I don’t believe for a second that 92% of our population need Social Security; that most Americans are too incompetent to plan for their own futures without picking each others’ pockets. If it is the case that only 8% of Americans still want freedom, then America is philosophically dead, Marxism has won, and economic collapse, Gulags, and gas chambers are only a matter of time.

I don’t believe in the basic incompetence of the vast majority of the American people. But I do believe in the saying, “Be careful what you wish for.” Think of what it could mean to keep the current system going. It’s definitely unsustainable. But the proposed cure is worse than the disease. Many politicians have suggested “means testing” social security benefits; a fancy way of saying if you have private savings built up over a lifetime, the state will cut your social security payments for the sake of increasing benefits of others who “need” them, thus screwing the responsible because they were responsible enough to save. Saving Social Security and Medicare means cutting a lot of people’s benefits. Think it’s bad that the woman who died at 65 got screwed? Wait until people who don’t die at 65 get screwed. That’s what it’ll take to “Find a way to keep Social Security and Medicare going . . .” (Contrary to scaremongers, Social Security can be radically altered or even ended without harming people who have planned their lives around it and now count on it.)

If we’re going to continue Social Security, it should at the very least be radically altered. If we’re going to rename anything, it should be to rename “Social Security” into “Personal Security”—and mean it. We must establish an ironclad individual property right to the money taxed away from each of us as well as the returns generated by means of personal, private accounts. People whose political power depends on keeping people dependent on politicians for their payments won’t like it. Neither will people who hope to collect more than they earned or people who want to evade the responsibility of taking care of themselves. But those of us who believe it is the individual's right and responsibility to plan his own life will be the big winners.

Related Reading:

The “Personal Account” Path to Ending Social Security

Property Rights: The Hidden Issue of Social Security Reform -- Charles E. Rounds Jr.

Protect Your Corn: 3 Ways to Self-Fund Retirement in a Means-Tested Social Security World -- David Reyes

Social Security is Much Worse Than a Ponzi Scheme - and Here's How to End It -- Richard M. Salsman

Chile’s Social Security Lesson For The U.S. -- José Piñera

Privatize Social Security (Even if the Market Crashes) -- Michael D. Tanner

Private Social Security Accounts: Still a Good Idea -- William G. Shipman and Peter J. Ferrara

The Social Security Injustice

Politicians’ Bipartisan Sneak Attack on Social Security Highlights Need for Personal Accounts

QUORA: 'How do fans of Ayn Rand's work feel about the fact that she used social security?'

QUORA *: ‘How do fans of Ayn Rand's work feel about the fact that she used social security and Medicare in her old age?’

I posted this answer:

The question implies that those programs are voluntary. They are not.

Like everyone else (me included), Rand “used” Social Security and Medicare** because she was forced into it, by law--which means, at governmental gunpoint. As with any tax, if you evade your Social Security and Medicare taxes, you’ll be arrested, fined, and probably thrown in a cage. The fact that we Americans are forced into these programs by our own government, the very government that we should be able to count on to protect our rights to act on our own judgement and protect our property from thieves, is precisely what makes Social Security and Medicare immoral and in need of being phased out and abolished, as a matter of justice.

Justice also demands that a person should get what she pays for, even if the payment is forced. So regardless of what a person’s opinion is of Social Security and Medicare, anyone who pays FICA taxes is morally and rightfully as well as legally entitled to collect the promised benefits as long as these programs exist.

It is fully consistent, morally and logically, to “use” Social Security and Medicare while simultaneously expressing opposition. Both positions are based on justice. This view is also consistent with Ayn Rand’s work, given that justice is considered in her philosophy of Objectivism to be a cardinal virtue.

* [Quora is a social media website founded by two former Facebook employees. According to Wikipedia:

Quora is a question-and-answer website where questions are created, answered, edited and organized by its community of users. The company was founded in June 2009, and the website was made available to the public on June 21, 2010.[3]Quora aggregates questions and answers to topics. Users can collaborate by editing questions and suggesting edits to other users' answers.[4]

You can also reply to other users’ answers.]

** [I’m assuming for argument's sake that Rand actually did apply for and collect Social Security and Medicare benefits. If she did not, she should have.]

SUPPLEMENTAL:

Note to those who accuse Rand and others who conscientiously object to these programs while collecting the promised benefits of being hypocritical: To claim the right to force people into submission to your values, and then denounce them for objecting, is vicious and unjust, not to mention comical. But, hey, smears and insults and intimidation are always the last resort of those who can’t rationally refute the substance of the arguments against.

Related Reading:

The Social Security Injustice

Social Security and the "Hypocrisy" Charge

New Retirement Savings Scheme in New Jersey Expands Government Control of Retirees’ Savings

A New Jersey legislator wants the state to establish retirement savings accounts for any worker that doesn’t have one. As Matt Friedman of NJ Advance Media reports for NJ.com:

New Jersey would be one of the first states in the nation to offer retirement accounts to private sector workers who don't have them under a plan backed by the leader of the state Assembly.

Assembly Speaker Vincent Prieto (D-Hudson) on Monday proposed the legislation (A4275), which is based on a plan in Illinois that was signed into law in January and is touted as the first of its kind in the country.

The Illinois law “requires all businesses in operation for at least two years and that have at least 25 employees to offer by June 1, 2017, its workers an individual retirement savings option.” In the NJ version, companies would have the option of setting up their own employee retirement plan if they don’t already have one, or sign on to the so-called "New Jersey Secure Choice Savings Program.”  Individual workers could opt out.

Of course, what the government “gives” you, the government will control:

The program, which would take effect within two years of its passage, would be administered by a seven-member board made up of officials from the governor's office and appointees by the senate president and assembly speaker.

The retirement benefits would be held in the a fund be used for paying the benefits, administration of the program and investments on behalf of the program. [sic]

Need I say more? Aren’t these the same people who currently administer the state public employee pension system, massive unfunded liability and all? Government bureaucrats beholden to politicians would decide how your money is invested and how your benefits are paid out.

Observe also that this is another example of the “need” for a government program being created by a prior government program. Friedman reports:

"This truly is a win-win for employees and employers," [Democrat Assembly Speaker Vincent] Prieto said in a statement. "The vast majority of today's retirees rely primarily on Social Security payments for income. Meanwhile, retirement savings are a mounting anxiety for more and more workers.

"This program will create much-needed security and peace of mind for employees who have no retirement plan right now," [Republican co-sponsor Assemblyman Tim] Eustace said.

In other words, the “security” promised by Social Security doesn’t deliver much security. But the promise of that security created a disincentive for workers to save privately. The result: many realize too late—and after a lifetime of FICA taxes—that relying only on Social Security leaves one scraping by on the edge of poverty.

To be sure, workers who become primarily dependent on Social Security are not completely blameless. The idea that Social Security shouldn’t be a person’s only retirement vehicle is not exactly a state secret. Retirement experts have been telling us for decades to save save save to supplement Social Security. But still, the disincentive to save cannot be denied. So, once again—like the fireman who starts fires so he can be the “hero” who rushes to extinguish it—the government can be seen rushing to the rescue of its own victims.

Any worker who uses this politically-controlled plan is a fool. Better idea: Opt out and set up your own IRA with one of the many private mutual fund companies. Anyone is free to set up his own IRA. It’s easy, and you can fund your plan by direct periodic transfers from your checking account to your IRA. By all means, take advantage of your company’s 401k or equivalent program, if available. You needn’t involve N.J. politicians in your private financial affairs.

Along the lines of Individual Retirement Accounts, a good idea to lobby politicians for would be Universal Savings Accounts, which enable savers to put after-tax money away for any reason, and withdraw the savings and accumulated returns tax free. As Reason’s Veronique de Rugy observes, the accounts would be “pro-growth, pro-family [?], and pro-freedom, with a much-needed side of simplification and flexibility.” Furthermore, she writes, Universal Savings Accounts, lacking any special conditions (such as retirement, college, etc.), can operate “without giving special treatment to favored interest groups through the tax code.” (A flat tax with much lower income tax rates, which I favor, would eliminate all such deductions. But as long as the status quo exists, I favor almost any tax relief offered to individuals.)

True, traditional IRAs, 401Ks, so-called USA’s and the like use the tax code to “encourage savings”; i.e., manipulate people’s behavior. But at least the saver won’t have some government panel beholden to politicians looking over their shoulder—or worse, taking unearned credit for whatever benefits accrue to individuals taking advantage of the program, making people feel like they owe it all to government.

Longer term—and worst of all—these types of programs are a threat to liberty. Traditional retirement programs give relief from taxes, but otherwise leave the administration of the funds in private hands. The New Jersey Secure Choice Savings Program does nothing more than to secure government control of workers’ retirement planning. The state, with its law-making powers, is effectively overriding private firms that have no such power. It is “the camel’s nose under the tent” of a complete government takeover of retirement, a logical progression started by Social Security.

A political power grab is the only logical motive behind this bill. What other motive could their be? As the South Jersey Chamber of Commerce observes, there is no “need” for a government-run Individual Retirement Account:

There is no shortage of retirement vehicles available to workers today through private companies. These companies provide the expertise needed to advise employers and employees on the options that are available to them and their tax implications.

The New Jersey Secure Choice Savings Program is a bad deal for workers and a bad deal for our liberty. Shame on the legislators who proposed it. It should be defeated.

Related Reading:

Your 401(k) - Obama’s Next Tarket

The Social Security Injustice

The "Personal Account" Path to Ending Social Security