Hold Off on the Social Security Hypocrisy

Social Security, 401k, taxes
This is no longer ‘the face’ of the program.

[Update: A reader took issue with our description of Social Security as an entitlement program, noting it was in fact an earned-benefit program. He’s a CPA, so we followed his lead. The post has been updated to reflect the change.]

Chuck must be worried about his monthly check.

The venerable discount pioneer and founder of Schwab, the firm that bears his name, makes the case for whacking Social Security and Medicare payroll taxes.

“[It] could significantly benefit seniors with modest incomes,” Schwab writes in The Wall Street Journal Tuesday. “Nearly 20 percent of people 65 and over are still working …Of people 65 and older who reported income in 2014, about 80 percent took in less than $50,000.”

“This proposal would boost their spending power significantly,” he adds.

Great, but be careful what you wish for.

We all want tax cuts—until we don’t. Witness the mortgage deduction, and how it’s routinely torpedoes wholesale reform.

As it is with Social Security. It’s a government earned-benefit program that enjoys widespread citizen support (read that sentence again). Efforts to “improve” the safety net therefore too often backfire.

Indeed, very reasonable attempts in the aught years of the last decade to invest trust fund assets in low-risk, low-return products (which would nonetheless yield slightly higher returns for recipients) brought the political equivalent of the hangman’s noose—future solvency be damned.

This despite the fact that the most vocal and statist Congressional opponents were (hypocritically) already doing it through their Thrifts; a classic case of good for me, but not for thee.

In salesman parlance of always asking for more, Schwab also calls for eliminating the penalty placed on Social Security benefits for those who continue to work.

“These straightforward proposals ought to draw bipartisan support,” he naively concludes.

Any 401k advisor who incorporates Social Security as part of the planning services offered (which should be all, at this point) has an interest in these proposals.

No longer the stereotype of the little ol’ lady wrapped in a shawl diligently clipping coupons, today’s Social Security mascot is the active and dynamic boomer able to potentially take advantage of up to eight separate benefits.

If the Constitution is a “living” document, and Vatican II needed to “get with the times,” shouldn’t government policies promoted in the 1930s do so as well? Chuck’s proposals are a great way to start.

John Sullivan
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With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.

1 comment
  1. Hi Everyone:

    Please check your language in Paragraph 7 – “It’s a government entitlement program . . .” Social Security is NOT an “Entitlement Program”. It’s an “Earned Benefit Program” A taxpayer (or their spouse/dependent children) must be “eligible” to receive benefits from Social Security. Working and paying in to the system is a huge part of being eligible.

    Thanks for the great article. Good food for thought. Keep up the great work.

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