Don’t Forget the ‘Social’ in Social Security

[question everything]

A finance professor at Wharton had an op-ed in the WSJ complaining at the "sorry" return of his Social Security benefits claiming, of course, that he'd have better returns had he invested the same amount in the market.

So I was glad that in addition to two letters saying "right on," there were these two:

he eminent Wharton professor Jeremy Siegel writes to complain that his Social Security “contributions” have been a poor investment, given the return from his monthly benefit now that he’s beyond full retirement age (“My Sorry Social Security Return,” op-ed, Dec. 22).

But he’s missing the “social” in Social Security. There is never any expectation that upper-income earners will do as well from the government as they would if they’d invested that money themselves. The system relies on higher contributions from those who are fortunate enough to earn handsome salaries. Social Security is by design a system to transfer wealth to low-wage earners in their retirement. There’s simply no way that a janitor could save enough in his working years to provide a decent retirement.

True, it would be more honest to label contributions as a tax and to admit that the Social Security Trust Fund (in which we loan money to the government, which then promptly spends it) is a myth; the system of taxes and benefits is more “pay as you go” than a genuine endowment program.

I have no desire to live in a worker’s paradise or in a Scandinavian socialist country where half my paycheck would go to taxes. But the monthly tax from my salary seems entirely reasonable, even if I may never get back all I put in.

David Robinson
Senior Lecturer
Haas School of Business
University of California, Berkeley
Berkeley, Calif.

Mr. Siegel’s math may be accurate. Less accurate is that it would have been “easy” for workers to put away the equivalent dollars on their own and end up doing significantly better. Had “contributions” been voluntary, not “forced,” few workers would have volunteered or invested the equivalent FICA deductions elsewhere. Did Mr. Siegel consider where so many about-to-be-retireds would stand today without their Social Security annuity? An investor seeks to be compensated for risk taken. An annuity insurance policy owner (which is what Social Security is) doesn’t expect or deserve the same return, knowingly trading some return for the security of a lifetime guarantee.

Mitchell Orfuss
New York

http://www.wsj.com/articles/dont-forget-the-social-in-social-security-1451329096

[Nye Bevan]

1. One of the keys to the success of SS is that it is true "forced saving".

It cannot be accessed early to buy a car or to improve one's home. You can't borrow from your pot like you can from a 401k. And given human nature, if everyone was given their SS taxes to invest themselves for retirement or could choose to spend it, how many would actually invest it? And of the ones who invested it, how many would be ripped off by fast-talking Wall Street salesmen hawking ill-advised investments?

[question everything]

2. Or, even if you were successful, when you are ready to retire

the stock market crash and you cannot afford to wait for it to recover.