A recent edition of Forbes Magazine included an article called “Seven Ways Social Security Benefits are Unfair.” It went on to list various ways that Social Security payouts are supposedly actuarially indefensible and unjust. Sadly, many of them were not well thought out. In today’s column, I have enough space to cover only a few.
Forbes’s Allegation: The Second Theft
Harry has earned a $3,000 monthly benefit. His wife, Wanda, raised kids and then joined the workforce. Wanda’s contributions should earn her a $1,400 benefit. But she is not permitted to collect.
What stops Wanda from getting anything back for the money she put in? A spousal benefit, set at 50 percent of whatever Harry has earned for himself. That, and a rule saying that Wanda can get either her spousal share or her own earned benefit, but not both.
In this case, Harry and Wanda get $4,500 a month; the $1,400 earned by Wanda goes down the drain.
What the politicians thought they were doing: being kind. It costs more to feed two mouths than one.
What they are, in effect, doing: pilfering Wanda’s contributions.
My Comments:
Wanda’s contributions were not really “pilfered.” On the Social Security Administration books, Wanda is paid her full benefit of $1,400 per month. Then they look to Harry’s account to see if she can get any extra benefits as a spouse. So Wanda is paid an extra $100 on Harry’s record to take her up to the $1,500 spousal rate that she is due.
Perhaps Forbes is suggesting that Wanda should get her own Social Security benefit and then, at the same time, also collect a full spousal benefit. In other words, Wanda would get her own $1,400 and she would get $1,500 in spousal benefits for a total of $2,900 per month.
You may say to yourself: “Well, that seems fair.” But then consider this. If Wanda can get her own retirement benefit and get full spousal benefits on Harry’s record, then why can’t Harry get his own retirement benefit and full spousal benefits on Wanda’s record? So Harry would get $3,000 per month plus $700 in spousal benefits for a total of $3,700 per month. Multiply that times the millions of married couples getting Social Security benefits and you have a financial disaster for the Social Security system.
Forbes’s Allegation: The Divorce Bonanza
Morris, who has earned a $4,000 benefit, has been married and divorced four times. If each marriage lasted at least 10 years and none of the cast-off wives had remarried (or earned a large benefit from working), Morris’s efforts generated a combined $8,000 a month. That’s because each ex-spouse is entitled to the 50 percent spousal benefit.
When Morris dies, the exes each get a survivor benefit, kicking the payout for this extended family to $16,000.
What would be fair: In a divorce proceeding, a Social Security benefit would be divided, just as an IRA is divided. It would not be multiplied.
What we’ve got: a reward for marital instability.
My Comment:
This allegation by Forbes is a highly unlikely scenario. To make this story work, Forbes must assume that each of the ex-wives never remarries. But actually, it is very likely that one or more—perhaps all of the ex-wives—will remarry, thus negating any benefits due them from Morris.
Also, the Forbes allegation assumes that not one of these women has worked and earned her own Social Security benefits. Once again, it is much more likely that some or all of Morris’s wives have worked and earned their own Social Security benefits, thus offsetting any or all divorced spousal benefits that they might be due.
Forbes’s Allegation: The Poverty Trap
Lower-income retirees have shorter lives than high-income retirees, a phenomenon that undoes much of the progressivism in the benefit formula. Tobacco users, who congregate at the lower end of the wage scale, are the worst off.
Not only do smokers collect over shorter lifespans than nonsmokers, but they also pay penalties with every cigarette purchase: excise taxes plus a tribute to tort lawyers. (The lawyers created streams of extra revenue to the states and collected a percentage.) Why are people who get shortchanged on Social Security paying for lawyers’ yachts?
My Comment:
This one is just weird. My guess is the author of the Forbes piece is a smoker and he’s upset because for years now, he has been forced to satisfy his nicotine cravings by standing outside Forbes’s offices in a designated smoking area.
But he hides his anger by lumping himself in with low-income retirees who supposedly die early and don’t collect Social Security as long as nonsmokers and higher-income retirees. So I must ask this: What is Forbes’s alternative? Does it suggest that low-income people and smokers should get some kind of bonus in their monthly benefits?
The Shortchanging of Millennials
Today’s 70-year-olds are sitting in high cotton. They’ve been buying votes along the way, and Congress has legislated for their benefit out of proportion to the money they put in.
Result: The system is running out of cash. Today’s younger workers, confronting a future of reduced benefits and higher taxes, will in effect be paying for their own retirement plus some of their parents’ retirement.
My Comment:
Fifty years ago, it was the Baby Boomers who were complaining that the prior generation was “sitting in high cotton” and that the program would go bust before they ever had a chance to collect. But now it’s the Boomers who are “in high cotton,” and the Millennials are doomed. I guarantee you that there will be another Forbes article 50 years from now saying that when it comes to Social Security, Millennials are “sitting in high cotton” and that Generation Alphas and Generation Betas are being short-changed. As the old song goes: “Round and round and round it goes. And where it stops, nobody knows!”
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