42 INVESTMENT ADVISOR JULY/AUGUST 2020 | ThinkAdvisor.comWhat do you think of Biden’s idea to raisebenefits for people who have been receiving Social Security for at least 20 years?How are you going to come up withmoney for that? The only way is to getrid of the earnings cap and give essentially no benefits for all those additionaltaxes paid.
Biden’s plan also calls for doing awaywith the Government Pension Offsetand the Windfall Elimination Provision,which affect Social Security benefitspaid to state and local governmentworkers in jobs that don’t require payment of Social Security taxes. Do you goalong with that part of his plan?
I disagree. It’s inappropriate. The system pays those employees as if they’relow-income employees. But they aren’t.
How, then, would you categorize them?They’ve chosen to work at jobs thatdon’t require paying Social Securitytax. Therefore, they shouldn’t get paidSocial Security benefits as if they’relow-income employees. Hillary Clinton[as Democratic presidential nominee in2016] wanted to pay people who work athome taking care of kids as if they werein the [labor] force. As it is, we don’t haveenough [funds] to meet all our promisedpayments for employees that pay intothe system. Don’t take our money andgive it to people who haven’t done that.
What has Trump proposed for
reforming the Social Security system?
I haven’t seen a serious proposal fromhim on how to solve Social Security’sproblems. He recently said somethingabout reducing the [Social Security] payroll tax below the current level. But Ibelieve that was for a temporary decreaseduring the COVID- 19 pandemic.
What are other proposals for saving
There are [a few] ways to pay for prom-
Which would be the most effective?
ised benefits [in the future]: One is rais-
ing the payroll tax, and the other is
reducing benefits to about 79% of those
promised. That would be for all Social
Security recipients after the [Social
Security] trust fund has been exhausted.
I believe that raising payroll taxes is abetter alternative than a plan that wouldturn to an 80-year-old grandmother that’sdepending on promised benefits and tellher we’ll have to reduce those benefits to79% of what you were promised.
Still, workers would find raising payroll
I wish it weren’t necessary, but it’s inthe spirit of a required-savings program.
If worse came to worst, it’s better than
Are there any other options?
fundamentally changing the retirement-
income portion of the Social Security
system into an income-redistribution
plan. If we need to raise the amount of
the payroll tax from 12.4%, then let’s
raise it. Everybody would pay more.
Right now, we’re talking about 3.2%.
We could raise the full retirement ageby tying it to life expectancy. Peopleare living longer now. Social Security isdesigned to pay a [continuous] real benefit for the rest of your life. That’s a realannuity. So with life expectancy goingup, to be prudent you’ve got to followannuity principles.
What would be necessary to effectuate
As life expectancy increases, in orderto pay the same amount, you need tohave people start later. That would
Letter to the Editor
I read the article on Social Security’s future with interest. There’s no question thatlonger life spans and the declining worker-to-retiree ratio are troubling issues.However, the premise that eliminating the deficit can be done by putting moremoney into the program or by reducing benefits is not a solution; it is a cop out.Any solution that involves more taxes or lower benefits only punishes those whoare forced to participate and who did not create the problem. This is a pay-as-you-go plan, and that is not a solvent long-term funding solution. This programwas created in 1935, and it is time to rethink this program.
Many Americans depend on this program, and this is why a solution must befound that protects the integrity of the program and guarantees made to currentand future retirees. “Social Security 2. 1” would involve amortizing the $13 trillionshortfall in benefits to funds required to meet the next 75 years of “promises.”Making all payments to the plan pre-tax and creating a plan for two groups ofrecipients would be a good step.
For those over 40, design the plan to function like the current model, but amor-
—Frank R. Owen, III ChFC, CLU
tize the potential liability for any shortfall over a longer period of time, say 50–75
years. For workers under age 40, design a plan more in line with a defined con-
tribution plan that would allow them to own the asset with some constraints on
access to funds. These workers understand 401(k) plans more than pension type
benefit plans already. This always brings up the dirty word “privatize.”
But think about it. If participants own it, bureaucrats do not have access to the
assets to fund their pet projects and reelection scams. This is certainly a novel
approach; with some thought may be a solid foundation to build on moving forward.