Social Security: Time to Change the Rules?

We’re entering Washington’s silly season. In 18 short months we’ll hold our next presidential election. Between now and then we can look forward to endless proclamations, attacks, and counterattacks by candidates hoping to score political points.

While some people parse words in search of falsehoods, I’m always looking for something else — the truth.

New Jersey Governor Chris Christie, a not-yet-declared-but-maybe-someday-if-he-gets-the-right-donor presidential hopeful, recently hopped on the truth train when he declared Social Security unworkable.

This could have been a calculated political move meant to attract supporters that like bold statements, or it could be exactly what he said — an important topic that no other candidates are talking about. Either way, he pointed out the facts as they are, and then recommended a solution.

As with many such problems and recommendations, his policy might address the issue, but it also represents a fundamental change in how the program operates. Effectively it means changing the rules when the game is already under way….

We count on the rule of law to be steady so we can plan for the future. Without a consistent legal framework, we can only guess how things might look years down the road.

Unfortunately we have to take many financial steps today — buy insurance, use IRAs, etc. — to prepare for retirement. If the rules change, how do we know which steps will be the right ones?

Under the Christie plan, Social Security would be reduced for those making over $80,000 per year in non-Social Security income, and eliminated for those making over $200,000. He would also increase the full retirement age from 67 to 69 by 2027.

When asked if this was a tax on the wealthy, Governor Christie hopped off the truth train and took the side road of deflection. He replied that neither Mark Zuckerberg nor Warren Buffett would be materially affected if they didn’t receive Social Security benefits.

I think that’s a “yes.”

But the governor’s plan isn’t aimed at just billionaires. If you have $1.5 million and earn 6%, that’s $90,000, which lands you right in the “reduction” section of the governor’s plan. While $1.5 million is a good sum of money, it doesn’t quite put you in the same category as Zuckerberg and Buffett.

But before we decide who pays, there should first be a conversation about what Social Security is, and how the seemingly easy path of not “giving it to the rich” requires us to ignore 80 years of history.

It was intended as, and remains today, a retirement program for people who work… period. If (or when) we cut off someone’s benefits because of their other earnings or wealth, we will have turned this from a program of providing for one’s self into modified welfare. The funds paid in by those who now receive nothing will be distributed to others.

When Social Security was first rolled out the government distributed pamphlets to explain it. In part, it read:

The checks will come to you as a right. You will get them regardless of the amount of property or income you may have. They are what the law calls “Old-Age Benefits” under the Social Security Act.

In other words, Governor Christie is casually discussing taking away someone’s right.

This is not a knock on the governor, and I’m not suggesting he is right or wrong. The point is that we fend for ourselves on many fronts.

When the government changes the rules, it always favors some at the expense of others. This leaves us having to guess at how future legislators will deal with looming issues so that we make the best possible choices in our planning today.

In effect, we have to distinguish between what people say, and what we think will really happen years from now. That makes the truth a difficult thing to find.

Rodney

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Categories: Social Security

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.