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Gov. Chris Christie of New Jersey has fired another salvo in the battle to make Social Security just another welfare program. The absolute pandering of our “leaders” on this program have made its continuation “as is” unlikely.
Christie suggests phasing out benefits to retirees who make more than $80,000 a year and eliminating benefits for those earning more than $200,000 per year. What’s the message he’s sending? Work hard, pay into the system during your working years, and just when you think you’re ready to retire comfortably, the government will keep your money.
Social Security is already a bad deal for higher-earning families. The benefits top out at a maximum of about $3,000 a month. Yet a self-employed, high-earning individual is already paying 12.4% of every dollar he or she earns, up to $14,694 a year. (The maximum amount of income subject to Social Security taxes is $118,500 a year. The tax rate for most wage earners is 6.2%; self-employed people have to pay 12.4%). At best, they will get back a fraction of what they’d have if their funds were invested conservatively.
It is unconscionable to tell young families that they will make major contributions from their incomes for most of their lives and then get nothing back in return if they are financially successful.
Proposals like Christie’s make the strategy of waiting for higher benefits a potentially foolish move for anyone with substantial assets. If you begin taking your monthly benefit at age 62, your payout would be 30% lower than if you had waited until your full retirement age of 67. But for each year you delay benefits beyond age 62, your payout rises by about 8%, up through age 70. Christie’s proposals will most likely accelerate the number of individuals taking early benefits, pushing the program to insolvency even faster.
Another of Christie’s suggested changes is raising the full retirement age from 67 to 69. This is reasonable, as life expectancies have greatly increased over the last two generations. Another reasonable proposal that has been floated in the past is to allow at least some of the contributions to be invested in individual accounts like an IRA. But those two good ideas are not part of the plan from New Jersey’s Republican governor.
Christie’s proposal for a two-tier structure already extends to Medicare, in which premiums for Part B (doctor’s services) can be four times as high as the baseline for affluent individuals. Who could possibly think that this won’t get worse, as the Medicare program is as insolvent as Social Security?
As a fee-only financial planner, I have a fiduciary responsibility to give the families I work with the best advice I can. The writing is on the wall. It is hard to believe that Social Security benefits at their current levels will be available for successful individuals now under the age of 55.
My advice to those individuals? Take the benefits as early as you can. Even though that would result in a lower monthly payout, the alternative is to wait for a benefit that might be gone by the time you’re ready for it.