$3,547 barely covers the insurance on Michael’s toys, but he will tell you in no uncertain terms that it doesn’t matter whether or not he needs the money, it’s the principal of the thing and he is entitled to receive his Social Security benefits. As an attorney, one of his favorite sayings is “sometimes you just have to rise above principal”. I would argue he should rise above this one.

Single, with no children, Michael’s law practice is his entire life.  His annual adjusted gross income is well over $500,000 per year and his net worth in the millions.  On his 70th birthday, he added another $3,547 to his monthly income in the form of Social Security Benefits.

As of 2017, American workers contribute 7% of their income (up from 6.5%) to social security every month until they meet the maximum contribution amount of  $7,886.40. To “max out” on social security for the year you must earn $112,663. The top 1% “max out” on Valentine’s Day every year.  Here is a calculator that shows your max out date (if you have one) based on income.

A View From Two Worlds:

Kathy's World

Kathy is a single mother making $31,099 per year (the average median personal income in this country).

She contributes 7% of her income every month, every decade.

When she reaches full retirement she will collect the average benefit of $1364 or $16,368 annually.

Michael's World

At $500,000 per year, Michael “maxed out” on his contribution in March every year.

His contributed less than 2% of his income and only contributed for 3 months a year.

He could afford to delay benefits and, at full retirement began receiving $3,547 per month, two and a half times the amount of benefits that Kathy will.

In 2014, there were 1,245,279 households claiming adjusted gross incomes of $500,000 or more on their tax returns.

The actual numbers are beyond the scope of this article, but for the sake of argument let’s assume that the average age of these high earners is 50, which makes them eligible for full retirement at age 67.

Based on this scenario, in 17 years there would be 1,245,279 multi-millionaires collecting $3,547 each for a total of almost $4.5 BILLION dollars per month.

That $4.5 BILLION would cover the Social Security Benefits of over 3 MILLION average workers every month.

Not only will Michael collect 2 ½ times more in benefits than Kathy; he will probably live longer too, further increasing his lifetime benefits.

As discussed in a 2015 PBS Newshour article, “a new study, “The Growing Gap in Life Expectancy by Income” by the National Academy of Sciences shows a dramatic increase in the gap between the life expectancy of the rich and the poor . . . for males born in 1960 (who are now age 55), that gap is 13 years [whereas the] life expectancy at age 50 for the poorest 20 percent has dropped by a half year for males and four years for females”.

Bottom line, high earners live longer and collect Social Security longer, which makes the number of “average workers” who could receive benefits if high wage earners chose to waive them even more than estimated above.

It is widely agreed that our Social Security system will be bankrupt by 2030.  Many suggestions for reform have been offered over the years, including caps on the annual income of full retirement age recipients.

During the 2015 Presidential Primary, Chris Christie outlined a plan which included an income ceiling of $200,000 per year to qualify for Social Security benefits.

Others have suggested raising the cap on wages paid in so that millionaires pay the same percentage of income in as the peasants.

All suggestions for reform have been met with strong opposition and it is a political mine field.

The “M” Word

Michael’s view  “I paid for it – It’s MINE” is the most often cited.  It is, after all, a core value in this country that you are entitled to enjoy all the fruits of your labor, and rightly so. Unfortunately, that tree is going bare and soon there will be no fruit for anyone, not even for Michael.

The “W” Word

This argument suggests that income limits would turn Social Security into WELFARE, which will erode public support for the program. This is a red herring. The original intent of the Social Security program was to create a safety net for the elderly living in poverty. Placing an income limit (not asset limit) on receiving it ensures that it can continue to provide for the intended recipients.

One need look no further than our Unemployment system for an example. Employers pay both Federal and State Unemployment taxes for the benefit of their workers. Many workers never collect Unemployment and there is an income limit.  Does that make unemployment benefits welfare?  Have you ever heard of it referred to in that way?

The “S” Word

SOCIALISM – the slipperiest slope of all. This country was founded on the sweat and tears of those who are able to pull themselves up by their bootstraps and create the American Dream.  Putting income limits on Social Security Benefits reduces the rewards of the most successful.  Worse yet, it would lead to full scale income redistribution and that is about as anti-capitalist as it gets. It is interesting to note that it is this fear based objection that hooks many who are nowhere near the proposed income limit.

A Better Alternative

The Brookings institute suggests that we instead “reframe” Social Security as insurance.  “To be sure, some would say it’s not fair that many Americans would pay Social Security taxes and get nothing in return. But that misses the point that Social Security should be insurance. And what’s really not fair is that many today pay high payroll taxes for a check that doesn’t keep them out of poverty . . . With this reform, regular Social Security would more efficiently protect the elderly against economic insecurity and from poverty without the stigma of applying for SSI “welfare.” And it would help put the program on a more secure footing.”

In the end, how you feel about Social Security really says more about your mindset and your core values than economics. If the program is to continue, younger generations must believe it has value.  Michael will need to find another way to pay for the insurance on his toys.

The idea of Social Security as insurance could go a long way to shift the mindset of entitlement to gratitude.

I am grateful for my success.

I am grateful that I do not have to live on $1,364 per month.

I am grateful that my contributions have provided a safety net for those who were not as fortunate as me.

Doesn’t that feel better?

The need for reform is real.  The time for this discussion is today.  Please like, comment, share and continue the conversation.

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Roma Wright

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