Fixing Entitlements With Means Testing!

Is there any way means testing can be fair?

A college buddy posted an article from the Wall Street Journal on Facebook titled Why America Is Going Broke. It blames the increasing deficits on entitlements like Social Security. I left the following comment;

There are several issues coming to a head here. The country/world has become increasingly complicated, both major parties have demonstrated an inability to adapt (I am a Libertarian). The problems the country is facing are bigger/longer than the duration of political cycles which contributes to kicking the can down the road; the focus is to get reelected not solve anything. People on Social Security are a powerful voting block and politicians will go to great lengths to avoid upsetting them. I blogged years ago that at some point there will be means testing and it will come down the wealth scale much further than you'd think. Call it stealing, the "what about the money I put in" anything else, I think it will be tough luck for a lot of people. I view this as an opportunity to solve the problem from the bottom up, make ourselves antifragile in the face of what seems to be inevitable. Or you can be the victim.

At a higher level this comment represents a recurring theme for me of not wanting to ever have things dictated to me financially. There certainly is visibility for something bad to happen with Social Security. I have no pushback against means testing being unfair or a form of theft or punishment for being responsible any other way you'd describe this sort of adjustment. It could be all of those things and still happen. As it is, there has been an expectation set that Social Security needs to impose a 23% haircut on payouts starting in the mid 2030's (it is a bit of moving target as some of the numbers change periodically).

You know what you needs to be done to avoid this being a personal disaster should it happen. Save more, spend less, figure out some sort of post-retirement income stream and try to be healthy enough to reduce medical expenses.

By all means, anyone wanting to devote the time should fight the good fight against whatever "unfair" outcome could be coming but there is no reason you have go down with that ship on a personal, financial basis.

Comments
No. 1-4
rogernusbaum
rogernusbaum

Editor

@Meisel to be clear I am not making the case for means testing, I am speculating that it might be foisted upon us and that I would want to be ready for it. They might increase payroll deductions too or instead of means testing.

Meisel
Meisel

It's simple to this baby boomer. You'll never be able to stop benefits. So increase the payroll deductions and increase the base they come from. Possibly to include investment income.

rogernusbaum
rogernusbaum

Editor

I may not be following you. Someone making $50,000 who retires at 67 in 2027 will get $1566. Someone making $100,000 who retires at 67 in 2027 will get $2418. Is that the "less" you're referring to, pound for pound is is less?

HughF
HughF

In a way, means is already baked into the system. Those who paid anywhere near the maximum during their working years get less back compared to their contributions than those who were lower paid, and therefore paid less. Tying the benefit in retirement to our retirement income (in many cases a reflection of how well we have saved and prepared), gets the recipient both coming in and going out -- a double whammy. A fairer solution (possibly only a partial solution) would be to get rid of the maximum yearly contribution, so those making big six-figure incomes are paying at the same rate as the rest of us. And tax all types of income, not just salaries. A maximum payout, based on living costs, makes sense. A maximum contribution does not.