Social Security has a revenue problem. In the coming years, it expects to owe more in benefits than in revenue as baby boomers leave the workforce en masse.
And if you’re thinking, “Well, that’s okay, younger employees will come and replace them,” well, not so fast. There is a reason that after World War II the baby was named tree. The US population experienced a huge increase in growth, but birth rates have since fallen. So even as younger workers enter the workforce, they can’t come in fast enough to replace the retired boomers.
What does this mean for social security? Well, the program may have to cut benefits — and it will soon — if lawmakers fail to find a way to pump more revenue into it, or find ways to significantly reduce costs.
However, there are some options regarding the latter, and one of them is to take benefits – in whole or in part – away from wealthy retirees who, based on their finances, don’t seem to need the money. But while that seems like a viable solution, it has some serious flaws.
Is Substance Testing Coming to Social Security?
The concept of means testing is already being applied in the context of personal bankruptcy filings. To take advantage of certain bankruptcy protections, filers must provide proof of income that is too low to service their debts.
Social Security means that testing would backfire, in that higher earners would be targeted. And those with incomes above a certain threshold could potentially miss out on some or all of their benefits.
On the one hand, it’s easy to see why resource testing seems like a reasonable solution. Social Security needs money. And it can be argued that an elderly person with a $7 million net worth does not need a monthly Social Security check to get by.
On the other hand, the whole premise of Social Security is that it is not a program that is necessarily reserved for people with financial problems. On the contrary, those benefits should be available everybody who pays in the program through years of payroll taxes. And so to take those benefits away from people who worked hard and collected giant nest eggs isn’t exactly fair.
A better but limited solution
To be clear, testing is not necessarily the most popular solution to Social Security’s financial problems. Lawmakers are well aware of the backlash that could ensue if they pulled the plug on benefits for the wealthy after forcing them to pay into the program for decades.
A better solution, then, may be to simply appeal to the wealthy and ask them to opt out of Social Security if they can afford to live without benefits. Opting out is easy – all you need to do to avoid collecting Social Security is not opt in. By appealing to people with a strong financial position, the program can save money at a time when it is so badly needed.
But in the end, even if a small percentage of wealthy people opt out of Social Security, it won’t dent the program’s financial shortfall hugely. And even testing on broad resources can have limited impact, which is another reason why it’s not such a popular solution to the problem.
It’s easy to argue that there’s something inherently disturbing about the idea of taking away promised benefits from people who’ve worked hard to become financially prosperous. For this reason, chances are the wealthy will continue to collect social security, even though some may argue against this.