My Opinion

Figuring out Social Security 

Those on a quest for their version of fairness are targeting the structure of Social Security based not on formulas, but on the differences in society and human beings. 

It was always a given that the more you earn the higher your monthly benefit or the longer you live and collect benefits the more in total you are likely to receive. There was always the possibility that a person could work and pay taxes for forty years and die the day after retirement. In fact the actuaries count on all those factors. That’s how insurance and retirement plans work. 

Somehow all that has become unfair and some of the folks looking at Social Security want to change things. 

As currently structured the SS benefit formula favors lower income workers by replacing a higher percentage of earnings, on average 42%, but less as earnings rise. Of course, the more you earn, the more taxes you pay even while your benefit is less generous. This means that on an actuarial equal basis, higher earners are subsidizing other workers. 

But there are other factors. Higher income earners live longer so their chances of collecting a benefit for 10-12 years longer is greater. In addition, lower income workers tend to begin collecting benefits at an earlier age, they may collect longer, but at a reduced amount. 

So, to fix this perceived inequity some policymakers want to change the Social Security calculation to give even a higher proportion of benefits to lower income beneficiaries. 

Is this the purpose of Social Security; to adjust for all factors relating to longevity, to account for life choices or circumstances? How far do we go in converting Social Security into a giant welfare program funded by fewer and fewer people while ignoring actuarial basics that would apply to the typical retirement plan? 

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10 replies »

  1. Works for me – every taxpayer and their employer pays in the same amount and everyone gets the same benefit at SS normal retirement age.

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  2. I define proportional as commensurate. Distinctions here include – historical tax rates, maximums, minimum and maximum benefits, spouse and survivor benefits, disability, child, taxation, etc.

    Take two couples paying in the same amount of taxes over their lifetimes- chances are almost nil that they will receive benefits proportional to taxes, let alone the same benefits.

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  3. No. No one gets a benefit proportional to the taxes they paid!

    That’s the “social” in Social Security.

    This is nothing more than buying votes. First make it sustainable, as is, indefinitely. Then propose what you want to buy votes, subject to a vote by of Social security’s taxpayers – where tax burden limited to those who vote yes.

    Already more than enough vote buying where bill will be paid by as yet unborn taxpayers.

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    • If you earn $50,000 and I earn $100,000 don’t your payroll taxes reflect your income as do mine and doesn’t your income determine your proportional benefit (recognizing the bend points favor lower income workers)?

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  4. “How far do we go in converting Social Security into a giant welfare program funded by fewer and fewer people while ignoring actuarial basics that would apply to the typical retirement plan?”

    SS is nothing but a giant welfare program. That is what it has been for the last 75 years. I am so sick of everyone who does not realize this simple fact. SS is not a retirement program, period. It is a taxing system to provide current retirees monthly benefits.
    The rich worker gets more because his employer pays in more, so he should not be complaining, he is still getting a monthly payment for life and a spousal payment for life, if married. That would be hard to match if you only counted his part of the SS tax, which is all that they paid. There is zero proof that if the employer did not have to pay the SS tax that they would pass it on to the worker. I have been paying property tax for the last 17 years to fund the schools, but have not had any kids in school. My point is we pay all kinds of taxes and may never see much of a benefit, but that is life.

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    • Don’t understand your comments about the rich getting more because their employer contributes. The employer contributes for all employees. Everyone gets a benefit proportional to their taxes paid except that lower income get a higher percentage income replacement because of the SS benefit calculation.

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  5. I don’t want to comment on this post, but would like to comment on the one earlier about drug importation but the comment page does not pop up, just an “Error 404” statement.

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    • Because the higher paid worker $100,000 employer pays in more in tax than he does on the worker making $50,000 the higher paid worker gets a bigger check and he still made more in his salary. A better system would be to require employers to pay in the same for each worker and everyone gets the same benefit. After all who needs a bigger Social Security check in retirement the guy making $50,000, since he had less to save over his career. This kind of system would lower some of the high earners benefit, but raise the average higher.

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