No Social Security for the Rich?

Recently I read a book about Bernie Sanders entitled “The Essential Bernie Sanders and his Vision for America” by Jonathan Tasini and a book by Donald Trump entitled “Crippled America: How to Make America Great Again”. Interestingly both of these presidential candidates seemed to like the idea of making Social Security a means tested program. In other words, if you have a certain amount of money at retirement, your Social Security would be cut. With even more wealth you would see all your Social Security disappear. And indeed this idea has a lot of appeal to people since it’s hard to see why a person should be paid Social Security when he or she really doesn’t need it. Cutting wealthy people off would save money for the system and help keep it solvent a bit longer. However, I have an objection to this idea.

Let us suppose there are twins, Joe and Ed, who earn the exact same wages their entire lives. When one receives a pay increase, the other receives one of the exact same amount. As such, these twins will have paid in the exact same amount to Social Security. Even though they are twins, Joe and Ed have very different personalities.

Joe is always concerned about the future. He is very frugal with his money and invests a fair percentage of his income, putting as much into his 401K as legally allowed. He foregoes luxury items and doesn’t take extravagant vacations.

Ed believes one should live his life to the fullest every day since no one knows when he might keel over dead. So, he puts a minimal amount of money into his retirement, deciding to rely mostly on his Social Security should he live until retirement age. He drinks and smokes away much of his money. He buys a house he can barely afford as well as expensive cars. He takes elaborate vacations all over the world. Basically, he lives it up as much as possible.

Then comes the time for Joe and Ed to retire. Joe has a fine nest egg built up. He is told that he is so well off, he is not eligible to receive any of the Social Security contributions he paid into the system. Ed, on the other hand, is essentially broke and will depend entirely on his Social Security payments.

Is this the message we want to send to people? One that says if you are frugal and believe in providing for your own future, you will be punished by never getting any of the money you paid into Social Security. However, if you are profligate and squander all your money, you will not be punished. I say no, this is not the message we should be sending.

However, I have no objection with people voluntarily foregoing their Social Security if they find themselves not needing it and simply want to help keep the system solvent.