Do We Really Want to Reinforce Poor Planning Behaviors?
I was disappointed, but not really surprised, to see a columnist’s comments about Social Security.
Charles Krauthammer is a weekly columnist for The Washington Post. I recently read an opinion piece by him titled, “Obama: The Grand Strategy,” in which he referred to the fixing of Social Security as “relatively easy.”
Krauthammer says the answer will be “…some combination of means testing for richer people, increasing the retirement age, and a technical change in the inflation measure (indexing benefits to prices instead of wages). The proposal is brought to Congress for a no-amendment up-or-down vote. Done.”
Now, I’m OK with increasing the retirement age; I actually recommended it in a previous HRTools.com Insight titled, “Dear Mr. President: Ideas for Fixing Retirement Planning Problems.”
I’m also OK with changing the inflation index. I have a problem with the “means testing.” Here’s why.
“Means testing” means that a person’s overall wealth and/or income would be considered for the purposes of determining Social Security benefits. If a recipient’s wealth or income is above a certain level, the recipient’s benefits would be reduced or subject to a higher level of taxation. This is one of the principals behind all social welfare programs such as Medicaid or the Supplemental Nutrition Assistance Program (food stamps); i.e., the benefits, which certain individuals receive, are based on each individual’s eligibility needs for those benefits.
So, let me give you a hypothetical situation. My clone and I start working in the workforce at the same time, and we make the same salary all through our lives. We’ve paid into the Social Security system like good little boys for the past 35 years, and we’ve been promised we will receive a benefit when it’s our turn to retire. As things stand now, we’ll get the same benefit.
My clone, though, is something of a spendthrift. He spends every last dime he makes. He frequently takes the family to Walt Disney World, drives a new Lexus and eats at fancy restaurants. He hasn’t saved anything for his retirement. Meanwhile, I go to Galveston for my vacations, drive an older Honda and eat out at McDonald’s. My friends say I’m cheap, but I’ve saved for my retirement, and I hope it will be a secure one.
What will “means testing” do for me and my clone? My answer is: My clone will get more Social Security benefits than I will. Because I’ve been prudent and saved, I’m going to be eligible for less Social Security benefits in retirement. My clone, having spent every cent he made, will get a larger check as a result. At the risk of using an over-used word, this doesn’t seem ‘fair.’ This solution seems as though I will be punished for having saved, while the person who spent will be rewarded.
Think of what this solution will tell our children. It’s better to spend it all now, because saving only means that you’ll earn less in benefits down the road. Or, conversely, that it doesn’t matter if you spend it all today, because if you do, the government will boost you up to where you need to be. I don’t think this message reinforces how we want them to view their personal finance practices.
Yes, I realize that no one is going to get rich off of Social Security, and I’ll probably still have a better lifestyle than my clone. But, the question is, when do we stop subsidizing irresponsible behavior?