Observations on life

Sanders on a new kick with Social Security

Dying young is inequality and unfair. Read this convoluted message from Bernie Sanders. Now he sees living longer as an unfair increase in your Social Security benefits compared with people who don’t live as long.

Here is the basis for his statements

Yes, poorer people are not as healthy as higher income people and on average they do not live as long. That has long been true. Part of the reason is lifestyle, obesity and smoking; researchers don’t know all the factors.

But what you collect in Social Security is directly related to what you paid in taxes and you don’t have to collect benefits for very long before you have received in benefits all you have paid in taxes.

imageIn addition, as usual, Sanders and friends are one-dimensional. The income earner at $80,000 has paid a lot more in income taxes over their life and more in Medicare taxes while, based on health, will collect less than the $20,000 earner in health benefits who also likely pays no income taxes.  The higher earner will pay income taxes on their Social Security benefits, the $20,000 earner will not.

Let’s look at some numbers. A man is 66 in 2016 and currently earns $20,000 a year. That man will receive a Social Security benefit of about $801 a month or $9,612 (48% of current income). And Sanders seems to forget this:

Social Security benefits are intended to replace only a percentage of a worker’s pre-retirement earnings. The way Social Security benefit amounts are figured, lower-paid workers get a higher return than highly paid workers. For example, lower-paid workers could get a Social Security benefit that equals about 55 percent of their pre-retirement earnings. The average replacement rate for highly paid workers is about 25 percent. Source: http://socialsecurityinfo.areavoices.com/2012/09/12/retirement-income-and-social-security/

The maximum (actually more than the maximum) he could have paid in payroll taxes over 35 years is $43,400 ($20,000 X 6.2% X 35 [both the 6.2% and the $20,000 for 35 years are intentionally overstated]). That means he will receive back in benefits all he could have paid in taxes in less than 4.5 years; in practice considerably less than 4.5 years. Life may be cheating him, but Social Security is not. 

Nobody is losing out on “earned” Social Security benefits. If that were true, the system would not be in the sad shape it is. The progressive effect of Social Security is in the benefit calculation which provides a larger proportional benefit to lower-income workers. It is not in life expectancy.

Low-Income Americans are Dying Young and Losing Out on Earned Social Security Benefits, GAO Finds

Monday, April 4, 2016

WASHINGTON, April 4 – Low-income Americans are dying younger than their higher-income peers and are losing out on earned Social Security benefits, according to a new study prepared for Sen. Bernie Sanders by the Government Accountability Office.

As a result of growing disparities in life expectancy between the rich and poor, the progressive effect of Social Security is eroding. American men making about $20,000 a year are expected to lose 11-14 percent of their lifetime Social Security benefits, according to the report. In contrast, men making about $80,000 a year are expected to see their benefits increase as much as 16-18 percent due to their longer life expectancy.

Raising the Social Security retirement age would result in even fewer benefits for lower-income groups, the study found. Lower-income men are living between 4 and 13 fewer years than higher-income men, and lower-income women are living between 2 and 14 fewer years than higher-income women.

“Poverty should not be a death sentence,” Sanders, the ranking member on the Primary Health and Retirement Security Subcommittee, said. “When over half of older workers have no retirement savings, we need to expand, not cut, Social Security so that every American can retire with the benefits they’ve earned and the dignity they deserve.”

The wealthiest Americans are not only living longer and collecting more in Social Security benefits, they are also contributing less of their income toward Social Security. Almost all of the income gains over the past three decades have gone to those earning above the $118,500 earnings cap and have therefore been exempt from Social Security taxes, costing the Social Security Trust Fund over $1.1 trillion.

“Today, the wealthiest Americans contribute less to Social Security than at any other time in recent history. We must reject calls to raise the retirement age and instead strengthen Social Security by ensuring millionaires and billionaires pay their fair share,” Sanders said.

Sanders has introduced legislation that would ensure that Social Security would be able to pay every benefit owed to every eligible American for the next 58 years. His plan would increase benefits by more than $1,300 a year for seniors with less than $16,000 in annual income. This includes boosting yearly cost-of-living adjustments by making the consumer price index better reflect seniors’ rising costs for health care and prescription medicine.

To shore up the retirement program’s trust fund, he would lift the cap on taxable income so everyone who makes more than $250,000 a year would pay the same percentage of their income into Social Security as middle-class working families.

There are valid ways to fix Social Security and be fair. For example, change the calculation of the COLA to better reflect senior spending while limiting who receives any COLA. Beginning at a future date, no one should receive a COLA during the first three to five years after starting benefits and never before the normal retirement age. In addition, no COLAs should be available to anyone who began to receive Social Security at the maximum benefit level (on the theory they had resources while working to supplement their retirement income).

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6 replies »

  1. I still think the guy making $80,000, makes out better, because he and his employer paid in more, he gets a bigger check.
    Also if his spouse never worked, she gets 50% of his higher benefit. Also, the higher wage earner is in a much better financial position to wait until age 70 and receive 32% more of that much larger benefit. If you look at total benefits over a 20 year period the higher wage earner still gets back 2 times what was paid in SS taxes. The guy making 80 K would get $991,000 / $660,000 without spouse. over 20 years. The guy making 20 K would get $423,000 / $282,000 without spouse. Also, any cola increases would be much more for the higher wage earner. So that may help offset some of the income taxes.
    RD, your last statements about cola’s makes sense, but people who think like Bernie would have none of it. Also, because of the higher income taxes on high income earners, the SS tax should never cover all wages, unless there is an income tax deduction for paying the higher SS tax.

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  2. Where did you get :

    “Let’s look at some numbers. A man is 66 in 2016 and currently earns $20,000 a year. That man will receive a Social Security benefit of about $801 a month or $9,612 (48% of current income). And Sanders seems to forget this:”

    I used the SSAs benefit calculator for someone born in 1960 making minimum wage from 18 to 65, the worker will get a monthly benefit of $960.

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      • Hit the wrong reply button :

        The problem with the quick calculator is that it uses todays’s benefits to determine past wages. The $20,000 QC bases your benefit on the idea that you earned $100 in 1968.1969,1970,1971. That is less than minimum wage at the time. That is about $0.05 an hour for a full time job.

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  3. I agree with Bernie. No one should lose a dime. That means we should only get back what we paid in (ee, er, interest). Can’t wait to see Bernie come out with a new proposal so those who die “young”, defined as before getting back all they paid in, their employers paid in, and the associated interest, have the residual they did not receive while alive paid to their descendants. What a windfall for MY descendants that would be as I probably qualify as one of Bernie’s white, old, male, wealthy dudes … and, there is NO chance I would ever get back the value of what has been contributed based on my work effort.

    What a liar he is! Misstates and misshapes everything to match his myopic and jaundiced view of the world. Hey Bernie, they recently opened up Havana … I hear the Cubans will soon need another socialist when the Castro’s pass. You should visit and check it out.

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    • The problem with the quick calculator is that it uses todays’s benefits to determine past wages. The $20,000 QC bases your benefit on the idea that you earned $100 in 1968.1969,1970,1971. That is less than minimum wage at the time. That is about $0.05 an hour for a full time job.

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